# Robusta fundamental, leveraged investments



## robusta

After reading SKC's thread with interest I am considering using this thread to record my investments. To this point in time all of my investments have been limited to my SMSF, recently I have applied for a line of credit and intend to invest with a goal of achieving a passive income through dividends and capital gains in the long term.


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## InvisbleInvestor

So it won't be paper trading? I'll definitely be watching with interest. Best of luck!


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## robusta

InvisbleInvestor said:


> So it won't be paper trading? I'll definitely be watching with interest. Best of luck!




If no one can think of any issues other than potential embarrassment I plan to document my investments, cost (interest, brokerage ect) and income and losses.

I imagine it will be a fairly booring thread as I intend to employ a very low turnover strategy and will probably update monthly unless investments are bought or sold.


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## skc

robusta said:


> After reading SKC's thread with interest I am considering using this thread to record my investments. To this point in time all of my investments have been limited to my SMSF, recently I have applied for a line of credit and intend to invest with a goal of achieving a passive income through dividends and capital gains in the long term.




Good stuff. There are quite a few benefits of keeping a thread like this in the public arena. Quite a few times I started writing a potential position, only to discover that things don't stack up. That is, I couldn't convince myself (and my audience) that it is a well thought-out, good risk/reward investment. Other times it led me to do more thorough research or make more sensible assumptions.

Keep it honest, real and open. And I am sure you have a lot more to gain by keeping a thread like this. 

Good luck.


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## robusta

skc said:


> Good stuff. There are quite a few benefits of keeping a thread like this in the public arena. Quite a few times I started writing a potential position, only to discover that things don't stack up. That is, I couldn't convince myself (and my audience) that it is a well thought-out, good risk/reward investment. Other times it led me to do more thorough research or make more sensible assumptions.
> 
> Keep it honest, real and open. And I am sure you have a lot more to gain by keeping a thread like this.
> 
> Good luck.




Thankyou skc, hopefully by posting my investments it will keep me from speculating - I have been known to get a bit excited 

Many of your stocks are on my watch list.


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## skc

robusta said:


> Thankyou skc, hopefully by posting my investments it will keep me from speculating - I have been known to get a bit excited
> 
> Many of your stocks are on my watch list.




I hope they don't drop to your buy level!


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## robusta

All set up now;

Line of credit $30,000.00

Interest rate 7.35 % variable

Terms, interest only

Lenders Mortgage insurance $667.81 (yes I went over 80% LVR)

Available credit $29,332.19


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## robusta

*NEW INVESTMENTS*

TSM - Thinksmart

Had my eye on TSM for a while now and hold in my SMSF, decent rising ROE and the ability to increase revenues and profits witl little extra capital required make me happy to have TSM an my largest holding. The new business model with less invome upfront but 25% extra profit per customer over the lifetime of contracts should increase profits.

Many individuals and businesses have trouble funding equipment particularily here and in the UK. I would put the main competitor in Australia as TGA.

MCE - Matrix Composites & Engineering

My largest holding in my SMSF with a stella performance and IMO more to come. Heaps of off shore oil and gas projects funded and MCE is in a perferct position to profit.

Portfolio Position

Starting line of credit $30,000.00

Bought
7,142 x TSM @ $0.66 = $4713.72
546   x  MCE @ $6.95 = $3797.70

Brokerage Paid = $20.10

Lenders Mortgage insurance $667.81 paid

Available credit $21,468.48

I will be making small regular cash contributions to the LOC to speed up the process of becoming cash flow positive.


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## NewOrder

I will be reading your thread with interest. Is there any way to get auto emails when threads are updated?


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## robusta

NewOrder said:


> I will be reading your thread with interest. Is there any way to get auto emails when threads are updated?




I am not sure NewOrder. This thread may have long periods with no trades but I am thinking of updating at least monthly.


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## Joe Blow

NewOrder said:


> Is there any way to get auto emails when threads are updated?




Scroll up to the start of the thread, click on the "Thread Tools" drop down menu and then select "Subscribe to This Thread". On the next page, select your subscription options, then click "Add Subscription" and you're done.


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## NewOrder

Joe Blow said:


> Scroll up to the start of the thread, click on the "Thread Tools" drop down menu and then select "Subscribe to This Thread". On the next page, select your subscription options, then click "Add Subscription" and you're done.




Cheers, all done


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## Liar's Poker

NewOrder said:


> Cheers, all done




Ditto

Good luck robusta.

-Liar-


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## robusta

*NEW INVESTMENT*

CCP - Credit Corp Group
These guys specialise in debt collection, they buy overdue debts from banks, credit card companies etc at a discount and collect the payments. The minimum they budget to make on a 6 year period on purchased debts is 230%.

Once again a simple business model with the ability to increase revenue and profits with not much extra capital required. CCP also has the ability to retain a lot of equity (low payout ratio) and earn a high return on that equity. 
ROE is a little low at the moment (otherwise my investment would be larger) but it should be rising in the future.

I will keep a eye on FSA because they seem to be gaining market share but probably at a lower margin to CCP.

Portfolio Position

Starting line of credit $30,000.00

Bought
7,142 x TSM @ $0.66 = $4713.72   (25/07/11)
546   x  MCE @ $6.95 = $3797.70   (25/07/11)
853   x CCP  @ $4.48 = $$3821.44  (26/07/11)


Brokerage Paid = $40.05
Lenders Mortgage insurance $667.81 paid

Available credit $16,959.28

All ords @  25/07/11  4603.80

I do have one order in the market half filled but after that waiting on reporting season to find more value.


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## VSntchr

Nice thread.

So far you have picked three of my holdings!

I too really like CCP. Future prospects are great...theyv been busy opening up in the Philippines this year. Management seems intent on keeping up margins (similar to ORL - who have refused to discount),which will provide long-term benefits.


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## skc

You are holding the same stock in your Super and also your personal LOC. Do you have an overall risk parameter / boundary for a company?


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## robusta

VSntchr said:


> Nice thread.
> 
> So far you have picked three of my holdings!
> 
> I too really like CCP. Future prospects are great...theyv been busy opening up in the Philippines this year. Management seems intent on keeping up margins (similar to ORL - who have refused to discount),which will provide long-term benefits.




Wow looks like we are looking for the same sort of things in companies. I also have a eye on ORL - just not cheap enough yet.


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## robusta

skc said:


> You are holding the same stock in your Super and also your personal LOC. Do you have an overall risk parameter / boundary for a company?




No not really I would probably not let a company get past 40-45% of my total exposure but if I could buy for example COH at half its current price, never say never.

I am not a big fan of diversification, if my top pick is at a great price and with great prospects I would rather buy more of that than my tenth favourite pick at a less great price with average prospects.


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## InvisbleInvestor

robusta said:


> Wow looks like we are looking for the same sort of things in companies. I also have a eye on ORL - just not cheap enough yet.




I think most, if not all value and/or long term investors, would find value in similar companies. I think it's in Roger Montgomery's book that he has the quote that Buffet and Munger would come up with different figures, but almost always the same conclusion about a business.


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## skc

robusta said:


> No not really I would probably not let a company get past 40-45% of my total exposure but if I could buy for example COH at half its current price, never say never.




I wouldn't be too adverse to doing that with equity but I'd be careful doing so with leveraged LOC. No one position should take you out of the game (e.g. margin called).


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## robusta

skc said:


> I wouldn't be too adverse to doing that with equity but I'd be careful doing so with leveraged LOC. No one position should take you out of the game (e.g. margin called).




No worries there SKC it is a line of credit on my mortgage so no margin calls, only the chance of terrible losses or incredible profits  or more likely something inbetween.


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## robusta

*NEW INVESTMENT*

FGE - Forge Group

Yet another business I hold in my SMSF and my second largest holding next to MCE at that. FGE is one of those rare businesses with the ability to retain a lot of profits and  maintain a great ROE. If history is anything to go by I think FGE is worth about $8.00 and I should have loaded up and made it one of my largest holdings but the uncertainty of a tightening labour market and a unproven ability to win larger contracts decided how much capital to allocate.

Portfolio Position

Starting line of credit $30,000.00

Bought
7,142 x TSM @ $0.66 = $4713.72   (25/07/11)
546   x  MCE @ $6.95 = $3797.70   (25/07/11)
853   x CCP  @ $4.48 = $3821.44  (26/07/11)
385   x FGE  @ $5.37 = $2067.45   (26/07/11)
291   x FGE  @ $5.34 = $1553.94   (27/07/11)


Brokerage Paid = $60.00

Lenders Mortgage insurance $667.81 paid


All ords @  25/07/11  4603.80


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## McLovin

Hmm every company you have been buying I've been buying lately too! Great minds think alike, fools seldom differ!!


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## kermit345

Robusta,

Agree wholeheartedly on Forge. In my valuation tool I created in Excel it basically has Forge well under its intrinsic value and utilising an equation I put together has it at about 92% in terms of positive buying sentiment. (The higher the percentage, the more positive my system is in terms of buying the stock, Qantas for example gets about a 30% sentiment in my system).

If Forge can meet or better the consensus earnings estimates while at least maintaining their order book then, in my opinion, they must move back towards at least $7.

I'm very interested in following your portfolio Robusta as it seems to follow very closely in the strategy i'm developing.

Cheers


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## robusta

kermit345 said:


> Robusta,
> 
> Agree wholeheartedly on Forge. In my valuation tool I created in Excel it basically has Forge well under its intrinsic value and utilising an equation I put together has it at about 92% in terms of positive buying sentiment. (The higher the percentage, the more positive my system is in terms of buying the stock, Qantas for example gets about a 30% sentiment in my system).
> 
> If Forge can meet or better the consensus earnings estimates while at least maintaining their order book then, in my opinion, they must move back towards at least $7.
> 
> I'm very interested in following your portfolio Robusta as it seems to follow very closely in the strategy i'm developing.
> 
> Cheers




Thankyou for that Kermit, FGE is certainly one of my top picks. I think there are a few of us who follow the Graham, Buffet, Fisher, Montgomery style of investing.

The challenge for me is I see some value around and hear all the "bad" news (US debt ceiling, Greek debt...) and like a poker player I want to go "all in". The trouble with this strategy is the opportunity costs missing out on even better bargains if / when the Chinese miracle economy comes back to reality. 

A handful of patience is worth more than a bushel of brains. - Dutch Proverb

Sometimes I am afraid I am short on both.


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## kermit345

robusta said:


> Thankyou for that Kermit, FGE is certainly one of my top picks. I think there are a few of us who follow the Graham, Buffet, Fisher, Montgomery style of investing.
> 
> The challenge for me is I see some value around and hear all the "bad" news (US debt ceiling, Greek debt...) and like a poker player I want to go "all in". The trouble with this strategy is the opportunity costs missing out on even better bargains if / when the Chinese miracle economy comes back to reality.
> 
> A handful of patience is worth more than a bushel of brains. - Dutch Proverb
> 
> Sometimes I am afraid I am short on both.




I must admit I made that mistake and went 'all in' during the lows of last year and i'm paying for it a bit now with minimal funds to make some great purchases. I'm working towards finalising my strategy and my coded spreadsheets that will allow me to follow it. Would be interested in possibly sharing with you to get your thoughts once i've finalised it if your interested?

I'm basically working on 3 spreadsheets: Valuation, Portfolio, Trading.

Valuation - This excel file allows me to put in a stock code and instantly updates with current, historical and future valuations as wells as other data to allow me to make an investment decision.

Portfolio - This excel file tracks the portfolio I construct in terms of overall portfolio gains etc as well as individual stock gains, stops and price data.

Trading - Simply follows the buys/sells I make and provides statistics on the performance of my trades/portfolio.

Don't wish to hijack your thread, just thought you may be interested and happy to discuss further via PM.

Cheers


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## skc

robusta said:


> No worries there SKC it is a line of credit on my mortgage so no margin calls, only the chance of terrible losses or incredible profits  or more likely something inbetween.




Your thread title says "leveraged investments" so I thought the $30k LOC goes into a margin loan or something...I suppose it's good that's not the case.


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## robusta

skc said:


> Your thread title says "leveraged investments" so I thought the $30k LOC goes into a margin loan or something...I suppose it's good that's not the case.




Cheers skc, I would have a little trouble sleeping with a concentraded portfolio that was nearing a margin call



kermit345 said:


> I must admit I made that mistake and went 'all in' during the lows of last year and i'm paying for it a bit now with minimal funds to make some great purchases. I'm working towards finalising my strategy and my coded spreadsheets that will allow me to follow it. Would be interested in possibly sharing with you to get your thoughts once i've finalised it if your interested?
> 
> I'm basically working on 3 spreadsheets: Valuation, Portfolio, Trading.
> 
> Valuation - This excel file allows me to put in a stock code and instantly updates with current, historical and future valuations as wells as other data to allow me to make an investment decision.
> 
> Portfolio - This excel file tracks the portfolio I construct in terms of overall portfolio gains etc as well as individual stock gains, stops and price data.
> 
> Trading - Simply follows the buys/sells I make and provides statistics on the performance of my trades/portfolio.
> 
> Don't wish to hijack your thread, just thought you may be interested and happy to discuss further via PM.
> 
> Cheers




That is very interesting kermit and light years ahead of me - I am working with pen and paper and a Casio calculator.


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## robusta

*NEW INVESTMENT*

SOO - Solco Ltd

This may seem like a strange decision when you look at the various State Goverments reduction in the Feed in Tariff schemes for residentual and small businesses. This may cause a tough year for this part of the business but with either a carbon tax or direct action in the long term I can see traditional electricity generation getting more expensive and solar getting cheaper, if current trends continue the price will quickly reach parity and not long after solar will be cheaper IMO.

SOO is much more than a importer of panels for your roof, they also have a profitable solar pumping division and are also involved in small to medium power generation projects for commercial and utilities as customers.

With no debt, about 1.8 x book value and a ROE of about 40% I think I will be happy to ride out the tough year to come and wait for the growth to take off.


Portfolio Position

Starting line of credit $30,000.00

Bought
7,142  x TSM @ $0.66 = $4713.72   (25/07/11)
546    x  MCE @ $6.95 = $3797.70   (25/07/11)
853    x CCP  @ $4.48 = $3821.44  (26/07/11)
385    x FGE  @ $5.37 = $2067.45   (26/07/11)
291    x FGE  @ $5.34 = $1553.94   (27/07/11)
29,524x SOO  @$0.105 = $3100.02  (01/08/11)

Brokerage Paid = $79.95

Lenders Mortgage insurance $667.81 paid

Credit available $10,197.97

All ords @  25/07/11  4603.80


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## tigerboi

maybe you should have followed me...??
TIGERBOI:
13th april 11,258 WPG @ $0.75 for $8443.....now $1.03 +37.33%


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## McLovin

robusta said:


> *NEW INVESTMENT*
> 
> SOO - Solco Ltd
> 
> This may seem like a strange decision when you look at the various State Goverments reduction in the Feed in Tariff schemes for residentual and small businesses. This may cause a tough year for this part of the business but with either a carbon tax or direct action in the long term I can see traditional electricity generation getting more expensive and solar getting cheaper, if current trends continue the price will quickly reach parity and not long after solar will be cheaper IMO.
> 
> SOO is much more than a importer of panels for your roof, they also have a profitable solar pumping division and are also involved in small to medium power generation projects for commercial and utilities as customers.
> 
> With no debt, about 1.8 x book value and a ROE of about 40% I think I will be happy to ride out the tough year to come and wait for the growth to take off.
> 
> 
> Portfolio Position
> 
> Starting line of credit $30,000.00
> 
> Bought
> 7,142  x TSM @ $0.66 = $4713.72   (25/07/11)
> 546    x  MCE @ $6.95 = $3797.70   (25/07/11)
> 853    x CCP  @ $4.48 = $3821.44  (26/07/11)
> 385    x FGE  @ $5.37 = $2067.45   (26/07/11)
> 291    x FGE  @ $5.34 = $1553.94   (27/07/11)
> 29,524x SOO  @$0.105 = $3100.02  (01/08/11)
> 
> Brokerage Paid = $79.95
> 
> Lenders Mortgage insurance $667.81 paid
> 
> Credit available $10,197.97
> 
> All ords @  25/07/11  4603.80




Another one I've got. I see this as more spec and haven't put much in at all. The industry as a whole is growing very fast, their topline revenue is growing fast but their bottomline is not growing anywhere near as quickly. It's hard to see a long run competitive advantage that they have. They essentially run a distribution business. Having said that I bought because the industry is growing so fast and the company has a decent bottomline growth rate.


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## robusta

McLovin said:


> Another one I've got.




Either you own a lot of different companies or we like the same sort of businesses 



McLovin said:


> I see this as more spec and haven't put much in at all. The industry as a whole is growing very fast, their topline revenue is growing fast but their bottomline is not growing anywhere near as quickly. It's hard to see a long run competitive advantage that they have. They essentially run a distribution business. Having said that I bought because the industry is growing so fast and the company has a decent bottomline growth rate.




I have to agree with you there McLovin, that is why SOO is my smallest holding. With this portfolio I decided $3000 would be my minimum investment, looking at the massive discount to IV I could not resist throwing a extra $100.00 at it.

Competitive advantage is hard to find except maybe exclusive products and the distribution system, however I could not go past SOO with such a strong ballance sheet and phenominal growth, time will tell if it pays off.


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## robusta

tigerboi said:


> maybe you should have followed me...??
> TIGERBOI:
> 13th april 11,258 WPG @ $0.75 for $8443.....now $1.03 +37.33%




Congratulations tigerboi that is a great return in a short time period. However WPG is not something I would look at as it is outside my circle of competence.


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## robusta

*NEW INVESTMENT*

ZGL - Zicom Group

Yet another business I hold in my SMSF, maybe I need to find some new ideas ZGL has a great cash flow, decent ROE good growth profile and powered out of the GFC when opposition were trying to raise equity.
Guidance for 2011 out today; revenue up 36%, NPAT up 30-40%, the market did not like it!! I wish I was sitting at a computer all day and could have got in at the low of $0.35 but fairly happy to pick up @ $0.43, what a wild ride.

My portfolio is looking a little sick after today, I will update returns (losses) towards the end of the month when I will probably be fully invested.

Portfolio Position

Starting line of credit $30,000.00

Bought
7,142  x TSM @ $0.66 = $4713.72   (25/07/11)
546    x  MCE @ $6.95 = $3797.70   (25/07/11)
853    x CCP  @ $4.48 = $3821.44  (26/07/11)
385    x FGE  @ $5.37 = $2067.45   (26/07/11)
291    x FGE  @ $5.34 = $1553.94   (27/07/11)
29,524x SOO  @$0.105 = $3100.02  (01/08/11)
7407  x ZGL   @$0.43   = $3185.01  (05/08/11)
Brokerage Paid = $99.93

Lenders Mortgage insurance $667.81 paid

Cash contributed $40.00
Credit available $7032.98

All ords @  25/07/11  4603.80


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## VSntchr

Finally we disagree!
Sold my ZGL for 0.435 today. Even if earnings do increase over 12 - 18 months as projected...I just dont see this as undervalued anymore..IMO its about fair value...and when theres a whole host of companies going for MOS of 30%+ ive found it too tempting to switch...

Different views make a market however. My father still holds this stock so good luck to you both.


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## skc

robusta said:


> *NEW INVESTMENT*
> 
> ZGL - Zicom Group




Have you look at their announcement and disect the numbers?

H1 NPAT was S$9.09m on S$71m revenue. The full year guidance are S$13-14m on S$146. That means in the second half they were busy (revenue $75m) but didn't make any money ($4-5m).

Unless there are good seasonal reasons for changes between H1 and H2, I tend to just pro-rate the latest half year for a yearly run rate. If you do that they are at a lower case of S$8m run rate (~A$6.3m, or ~3c EPS). 

You are no longer buying value (you paid PE = 14). You are buying turnaround and putting faith in a fragile work economy...


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## suhm

Seems like ZGL was a good offload given the poor update, was really expecting to go gangbusters given all the O&G activity, I was actually more worried about currency issues given the rampant AUSD. Management seems pretty upbeat about the future whereas they were quite low key from memory in the last profit release which could prescint for the future.

Though nearly every offload has been a good idea over the last few months.


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## robusta

VSntchr said:


> Finally we disagree!




AT LAST!!!



VSntchr said:


> Sold my ZGL for 0.435 today. Even if earnings do increase over 12 - 18 months as projected...I just dont see this as undervalued anymore..IMO its about fair value...and when theres a whole host of companies going for MOS of 30%+ ive found it too tempting to switch...
> 
> Different views make a market however. My father still holds this stock so good luck to you both.




Good luck to your dad and me and good luck with your buying today.


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## robusta

skc said:


> Have you look at their announcement and disect the numbers?
> 
> H1 NPAT was S$9.09m on S$71m revenue. The full year guidance are S$13-14m on S$146. That means in the second half they were busy (revenue $75m) but didn't make any money ($4-5m)..




I am looking forward to the annual report to really disect the numbers ,the fall in profit margin is a worry however ZGL in the half year has made a small acquisition PGH for $300,000 and is in a business that often has lumpy returns due to timing of payments for contracts and capital expenditure.




skc said:


> Unless there are good seasonal reasons for changes between H1 and H2,




This from todays guidance

"The Group’s orders for deck machinery had been affected by the slackened ship
building orders for offshore vessels during the recent global financial crisis. Demand
for offshore vessels generally precedes demand for our deck machinery by 1-2 years.
We expect to continue with slackened demand for our deck machinery in the next
financial year.
However, strong world-wide resurgence in demand for offshore rigs particularly for
deep seas exploration and production in the last 9 months has increased demand for
deep seas offshore vessels. A gradual build-up in demand for our deck machinery has
emerged. We expect this to gain momentum in the next 12-18 months.
b) The slack in our deck machinery was expected to be taken up by the substantial
orders received by us for oil and gas turnkey projects in hand. However, delays in
implementing these projects within the second half year caused by slow engineering
approvals, had caused the contribution from these projects to be pushed into the next
financial year.
We are confident that in the medium to long term, incremental growth in our offshore
marine oil and gas segment will be maintained."



skc said:


> I tend to just pro-rate the latest half year for a yearly run rate. If you do that they are at a lower case of S$8m run rate (~A$6.3m, or ~3c EPS).




That is a good rule of thumb but sometimes you have to look past one good or bad half of growth.



skc said:


> You are no longer buying value (you paid PE = 14). You are buying turnaround and putting faith in a fragile work economy...




I hesitate to bring this up but I do not look at PE at all when making investment decisions. The numbers I look at are ROE, equity/ share, debt/equity and cashflow. It is a long argument but when I am valueing a company why would I want to bring price into the equation, I want to value the business and then compare it to the price and buy or sell accordingly.
As for the fragile work economy I have no idea, boom, bust or muddleing through. I am however confident in the long term we need more oil and gas and ZGL will supply deck machinery to the ships.


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## skc

robusta said:


> I am looking forward to the annual report to really disect the numbers ,the fall in profit margin is a worry however ZGL in the half year has made a small acquisition PGH for $300,000 and is in a business that often has lumpy returns due to timing of payments for contracts and capital expenditure.




Lumpy payments do not equal lumpy profits because revenues are recognised in the period which the work is done. Cashflow however can be lumpy due to timing of payments.



robusta said:


> That is a good rule of thumb but sometimes you have to look past one good or bad half of growth.




I run a mile away from anyone who delivers a bad half. Yes it might very well be just a rough patch. But my theory is that the market isn't in the mood to give out benefit of the doubt... and you can always jump back on when they release the next positive guidance (which is how I jumped on ZGL back in Feb).



robusta said:


> I hesitate to bring this up but I do not look at PE at all when making investment decisions. The numbers I look at are ROE, equity/ share, debt/equity and cashflow. It is a long argument but when I am valueing a company why would I want to bring price into the equation, I want to value the business and then compare it to the price and buy or sell accordingly.
> As for the fragile work economy I have no idea, boom, bust or muddleing through. I am however confident in the long term we need more oil and gas and ZGL will supply deck machinery to the ships.




You bring the price into the equation because it is the price you pay. You can have the most profitable, high growth and fantastic company in the world...but you will only get subpar return unless you buy them at a fair or low price. 

The PE gives you the quickest answer on whether it is cheap or not. Based on your assessement on things like ROE, cashflow and earnings per share, a company deserves a certain PE. You can look around for similar peers to make such assessment.  In other words, low PE is your margin of safety. I am not saying buy a stock because it has a low PE, I am saying buy a good company when it has a low PE. And better still, buy a good company when it has a low PE and is about to experience some catalyst to move up. 

Anyway.... all my opinion of course and my portfolio is also being torn to pieces like everything else. I hope I don't sound too critical in my post and good luck with the investments


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## robusta

skc said:


> Lumpy payments do not equal lumpy profits because revenues are recognised in the period which the work is done. Cashflow however can be lumpy due to timing of payments.
> 
> 
> 
> I run a mile away from anyone who delivers a bad half. Yes it might very well be just a rough patch. But my theory is that the market isn't in the mood to give out benefit of the doubt... and you can always jump back on when they release the next positive guidance (which is how I jumped on ZGL back in Feb).




Hmmmm this humble pie does not taste too good. I may be wrong but I could have made a mistake in not recalculating IV in relation to the soft half. Having said that I think the sell off was overdone and I still got ZGL at a discount - just not as large a discount as I thought. 






skc said:


> You bring the price into the equation because it is the price you pay. You can have the most profitable, high growth and fantastic company in the world...but you will only get subpar return unless you buy them at a fair or low price.
> 
> The PE gives you the quickest answer on whether it is cheap or not. Based on your assessement on things like ROE, cashflow and earnings per share, a company deserves a certain PE. You can look around for similar peers to make such assessment.  In other words, low PE is your margin of safety. I am not saying buy a stock because it has a low PE, I am saying buy a good company when it has a low PE. And better still, buy a good company when it has a low PE and is about to experience some catalyst to move up.




This could turn into rather a long winded discussion and if it is ok with you I would rather have it at another time.




skc said:


> Anyway.... all my opinion of course and my portfolio is also being torn to pieces like everything else. I hope I don't sound too critical in my post and good luck with the investments




I love criticism it is a big reason I started this thread. To have to justify my investments it makes me think about them all the harder and maybe sometimes someone will pick up something I miss like for example ZGL


----------



## robusta

*NEW INVESTMENT*

MTU - M2 Telecommunications

A month ago I was looking at MTU and thinking if only in fell below $3.00 I would buy some, well at $2.62 today I could no longer resist.
A nice history of growth, good ROE and bright prospects. Once again this is a business that can increase revenue and NPAT with very little capital expenditure required.

Here is the latest investor presentation
http://www.asx.com.au/asxpdf/20110519/pdf/41yr8z22h5d2d9.pdf

*INVESTMENT SOLD*

ZGL - Zicom Group

See above comments for reasons, got out of this one with a small lost. Feels more like a bad trade than a investment. 

*INVESTMENT INCREASED*

CCP - Credit Corp

I liked CCP @ $4.48, I like it even more @ $3.83

*INVESTMENT INCREASED*

MCE - Matrix Composites

I liked MCE @ $6.95, I like it even more @ $5.17

Starting line of credit $30,000.00

Portfolio Cost
Lenders Mortgage insurance $667.81 paid
Bought:
7,142   x TSM   @   $0.66   = $4713.72    (25/07/11)
546      x  MCE  @   $6.95   = $3797.70    (25/07/11)
853      x CCP   @    $4.48  = $3821.44    (26/07/11)
385      x FGE   @    $5.37  = $2067.45     (26/07/11)
291      x FGE   @    $5.34  = $1553.94     (27/07/11)
29,524  x SOO  @    $0.105 = $3100.02     (01/08/11)
7407    x ZGL    @   $0.43   = $3185.01    (05/08/11)
1115    x MTU   @   $2.62   = $2921.30    (08/08/11)
386      x  MCE  @   $5.15   = $1995.62     (08/08/11)
520      x CCP   @    $3.83    = $1991.60    (08/08/11)

Sold:
7407 x ZGL @$0.40  = 2962.80

Brokerage Paid = $179.20

*Total Portfolio Cost:
$27,032.01*
Tax Position, Capital Gains (Losses)
($1069.22) loss

Current Portfolio Position

1373   x  CCP    @ $3.90  = $5354.70
676    x   FGE    @ $4.47  = $3021.72
932    x   MCE   @ $5.16  = $4809.12
1115   x   MTU   @ $2.55  = $2843.25
29524 x   SOO   @ $0.086 = $2539.06
7142  x   TSM    @ $.545  = 3892.39

*Current Market Value:
$22,460.74*

Total realised and unrealised loss -20.352% or - $4,571.27

Cash contributed $40.00
Credit available $3007.99

All ords @  25/07/11  4603.80 @ 8/8 4056.7  = -13.48%

Well that was a tough start to this portfolio and a bit of patience would have improved the result but I am happy with the companies I have picked and have a very positive view over the medium to long term. Eventually all that red ink will start to turn green.


----------



## PinguPingu

Hi Robusta, I also hold MTU and think it's a fantastic business, only problem is that I bought it just before this crash, a little above the 3$ mark. I'm now facing a dilemma of whether to sell into the next rally (if there is one) and try and get cheaper if the market falls (dramatically) even further...

At least as young 20 year old, time is on my side.


----------



## robusta

PinguPingu said:


> Hi Robusta, I also hold MTU and think it's a fantastic business, only problem is that I bought it just before this crash, a little above the 3$ mark. I'm now facing a dilemma of whether to sell into the next rally (if there is one) and try and get cheaper if the market falls (dramatically) even further...
> 
> At least as young 20 year old, time is on my side.




Hard to know what to do as we don't know what the market will do next, I however I think MTU will be worth a fair bit more than $3.00 in the coming years.

I have the same drama with MCE I bought a $6.95, then the price tanked the question I ask myself is if I sold it what would I buy? And the answer is MCE. I am not prepared to be out of it for 45 days to make the tax man happy about a capital loss and so I will hold (or buy more if I can)


----------



## robusta

*NEW INVESTMENT*

MIN - Mineral Resources Limited

Great management, good ROE and low debt/equity makes MIN to difficult for me to pass at these prices.
MIN is mainly a mining contractor prividing mineral processing, crushing services and pipeline services, they make a nice margin on these services. 

Add to this MIN own:
50% of manganese Mesa joint venture ASX: MAS
100% of iron ore producer Polaris Metals
30% of lithium producer Reed Industrial Minerals a subsidiary of ASX: RDR

Starting line of credit $30,000.00

Portfolio Cost
Lenders Mortgage insurance $667.81 paid
Bought:
7,142   x TSM   @   $0.66   = $4713.72    (25/07/11)
546      x  MCE  @   $6.95   = $3797.70    (25/07/11)
853      x CCP   @    $4.48  = $3821.44    (26/07/11)
385      x FGE   @    $5.37  = $2067.45     (26/07/11)
291      x FGE   @    $5.34  = $1553.94     (27/07/11)
29,524  x SOO  @    $0.105 = $3100.02     (01/08/11)
7407    x ZGL    @   $0.43   = $3185.01    (05/08/11)
1115    x MTU   @   $2.62   = $2921.30    (08/08/11)
386      x  MCE  @   $5.15   = $1995.62     (08/08/11)
520      x CCP   @    $3.83    = $1991.60    (08/08/11)
288      x MIN    @   $9.96   =  $2686.48    (08/08/11)


Sold:
7407 x ZGL @$0.40  = 2962.80

Brokerage Paid = $199.15

*Total Portfolio Cost:
$29,920.44*
Tax Position, Capital Gains (Losses)
($1069.22) loss

Current Portfolio Position

1373   x  CCP    @ $3.83  = $5244.86
676    x   FGE    @ $4.44  = $3001.44
932    x   MCE   @ $5.30  = $4839.60
288    x   MIN    @ $11.04 = $3179.52
1115   x   MTU   @ $2.63  = $2932.45
29524 x   SOO   @ $0.086 = $2539.06
7142  x   TSM    @ $.55   = $3928.10

*Current Market Value:
$25,765.03*

Total realised and unrealised loss -13.89% or - $4,155.41

Cash contributed $40.00
Credit available $119.56

All ords @  25/07/11  4603.80 @ 8/8 4096.7  = -11.01%

Well that is it, fully invested after two and a half weeks, I am surprised stocks fell to these prices so quickly. Nothing to do now except collect dividends, pay interest and read a couple of annual reports.


----------



## robusta

robusta said:


> *INVESTMENT SOLD*
> 
> TSM - Thinksmart Limited
> 
> I still like TSM but considering the headwinds of fx and poor retail growth I have bitten the bullet and taken the capital loss to deploy the capital in other opportunities....
> 
> *INVESTMENT INCREASED*
> 
> MCE - Matrix Composites & Engineering Limited
> 
> OK these guys have had a poor half but if guidance of 20% revenue growth is met and margins are retained I think MCE is a excellent buy.
> Starting line of credit $30,000.00
> 
> Portfolio Cost
> Lenders Mortgage insurance $667.81 paid
> Bought:
> 7,142   x TSM   @   $0.66   = $4713.72    (25/07/11)
> 546      x  MCE  @   $6.95   = $3797.70    (25/07/11)
> 853      x CCP   @    $4.48  = $3821.44    (26/07/11)
> 385      x FGE   @    $5.37  = $2067.45     (26/07/11)
> 291      x FGE   @    $5.34  = $1553.94     (27/07/11)
> 29,524  x SOO  @    $0.105 = $3100.02     (01/08/11)
> 7407    x ZGL    @   $0.43   = $3185.01    (05/08/11)
> 1115    x MTU   @   $2.62   = $2921.30    (08/08/11)
> 386      x  MCE  @   $5.15   = $1995.62     (08/08/11)
> 520      x CCP   @    $3.83    = $1991.60    (08/08/11)
> 288      x MIN    @   $9.96   =  $2686.48    (08/08/11)
> 809      x MCE   @   $4.20   =  $3397.80    (24/08/11)
> 
> Sold:
> 7407 x ZGL @$0.40  = $2962.80
> 7142 x TSM@$0.49 = $3499.58
> 
> Interest Paid    = $143.18
> Brokerage Paid =  $239.05
> 
> *Total Portfolio Cost:
> $29,819.74*
> Tax Position, Capital Gains (Losses)
> ($2486.39) loss
> 
> Current Portfolio Position
> 
> 1373   x  CCP    @ $3.87  = $5313.51
> 676    x   FGE    @ $5.06  = $3420.56
> 1741    x   MCE   @ $4.21  = $7329.61
> 288    x   MIN    @ $11.28 = $3248.64
> 1115   x   MTU   @ $2.89  = $3222.35
> 29524 x   SOO   @ $0.09 = $2657.16
> 
> *Current Market Value:
> $25,191.83*
> 
> Total realised and unrealised loss -15.52% or - $4,627.91
> 
> Cash contributed $120.00
> 
> Return on contributed equity -3,955%
> 
> Credit available $59.00


----------



## robusta

*INVESTMENT SOLD*

SOO - Solco
When I bought SOO I was aware that it was speculation investing in a industry exposed to government legislation to the extent the solar industry is, also I had no plans to be fully invested so soon but I could not resist the prices thrown up by the recent correction.
Sold SOO @ $0.10 today for a small capital loss. 


Portfolio Cost
Lenders Mortgage insurance $667.81 paid
Bought:
7,142   x TSM   @   $0.66   = $4713.72    (25/07/11)
546      x  MCE  @   $6.95   = $3797.70    (25/07/11)
853      x CCP   @    $4.48  = $3821.44    (26/07/11)
385      x FGE   @    $5.37  = $2067.45     (26/07/11)
291      x FGE   @    $5.34  = $1553.94     (27/07/11)
29,524  x SOO  @    $0.105 = $3100.02     (01/08/11)
7407    x ZGL    @   $0.43   = $3185.01    (05/08/11)
1115    x MTU   @   $2.62   = $2921.30    (08/08/11)
386      x  MCE  @   $5.15   = $1995.62     (08/08/11)
520      x CCP   @    $3.83    = $1991.60    (08/08/11)
288      x MIN    @   $9.96   =  $2686.48    (08/08/11)
809      x MCE   @   $4.20   =  $3397.80    (24/08/11)

Sold:
7407 x ZGL    @$0.40  = $2962.80
7142 x TSM   @$0.49 = $3499.58
29,524x SOO @ $0.10=$2952.40
Interest Paid    = $143.18
Brokerage Paid =  $259.00

*Total Portfolio Cost:
$26,887.29*
Tax Position, Capital Gains (Losses), Brokerage, Interest
($2,653.96) loss

Current Portfolio Position

1373   x  CCP    @ $4.25  = $5835.25
676    x   FGE    @ $5.35  = $3616.60
1741    x   MCE   @ $4.62  = $8043.42
288    x   MIN    @ $11.92 = $3432.96
1115   x   MTU   @ $2.78  = $3099.70

*Current Market Value:
$24,027.93*

Total realised and unrealised loss -10.63% or - $2,859.36

Cash contributed $160.00 ($40/week)

Return on contributed equity -1,887%

Credit available $3053.70

*PORTFOLIO REVIEW*

Well what a wild ride the last six weeks have given me. I have traded too much, been impatient and am sitting on both realised and unrealised losses but all in all I am happy with the portfolio - strange as that may seem to some.


*CCP- Credit Corp  +0.38%*

What a result this reporting season, I think ROE put it best on the CCP thread



ROE said:


> At this price you pricing a growing business with no grow or a decline earning for a year or two
> 
> A business with high return on capital employed and generous cash flow.
> 
> This business is at its best shape since listing with little debt and crazy free cash flow./QUOTE]
> 
> *FGE- Forge Group -0.13%*
> 
> These guys just keep on announcing new contracts and excecuting them
> 
> *MCE- Matrix Composites -12.46%*
> 
> This is the largest holding, and it had a shocker of a result but one half does not make or break a company. Look out for contract wins now Henderson build is completed.
> 
> Bought at $6.95,$5.15 and $4.20 average entry price excluding brokerage $5.277
> 
> *MIN- Mineral Resources +19.68%*
> 
> Bought MIN toward the recon bottom of the panic. Strong ballance sheet, good growth prospects, ~5% dividend this year, ~7.5% dividend next year.....
> 
> *MTU- M2 Telecommunications + 6.11%*
> 
> Low overheads, great margins, high ROE, nice dividend. What more do you want to know?


----------



## robusta

Have not posted my strategy for this portfolio so here goes...

The light bulb moment for me as a investor was reading The Intelligent Investor by Benjamin Graham. The idea that you can buy a part ownership in a company when out of favour and profit from the subsequent performance of the company seems like a good strategy to me.

From here reading Warren Buffet taught me you could pay more than book value for a share particularily if the company makes good incremental returns on retained equity.

Next Philip Fischer, Roger Montgomery et al have further confirmed and refined these basics and I hope to be able to profit from these lessons.

So the things I look for in a stock/business are:

Competitive advantage
Little or no debt
Competent and honest management
High ROE
Good prospects
A ability to retain profits and earn a high rate of return on those profits.

To date I may not have executed this strategy particularily well (-1887% on contributed equity) but I am confident that with time on my side the returns will come.


----------



## McLovin

robusta said:


> Have not posted my strategy for this portfolio so here goes...
> 
> The light bulb moment for me as a investor was reading The Intelligent Investor by Benjamin Graham. The idea that you can buy a part ownership in a company when out of favour and profit from the subsequent performance of the company seems like a good strategy to me.
> 
> From here reading Warren Buffet taught me you could pay more than book value for a share particularily if the company makes good incremental returns on retained equity.
> 
> Next Philip Fischer, Roger Montgomery et al have further confirmed and refined these basics and I hope to be able to profit from these lessons.
> 
> So the things I look for in a stock/business are:
> 
> Competitive advantage
> Little or no debt
> Competent and honest management
> High ROE
> Good prospects
> A ability to retain profits and earn a high rate of return on those profits.
> 
> To date I may not have executed this strategy particularily well (-1887% on contributed equity) but I am confident that with time on my side the returns will come.




I'm not I'd be putting Montgomery in the same league as Graham, Buffet, Fisher.

What was the reason for selling the SOO? It bounces around a fair bit, but I still like it as a spec play even with the legislation risk. From what I have read the market is growing at over 100%pa even without Govt subsidies.


----------



## robusta

McLovin said:


> I'm not I'd be putting Montgomery in the same league as Graham, Buffet, Fisher.





I take your point, Montgomery will need 20 plus years of performance to be in the same league. I do however like his book and use the valuation method for a "guestimate" of IV.



McLovin said:


> What was the reason for selling the SOO? It bounces around a fair bit, but I still like it as a spec play even with the legislation risk. From what I have read the market is growing at over 100%pa even without Govt subsidies.




You said it yourself SOO is a bit of a spec play, while I will allow about 10% of the portfolio to be in spec companies I also did not intend to be fully invested so soon then the recent correction happened..... 
It is good to have some capital in reserve for future opportunities.

Some would say 33.41% of the portfolio in MCE is speculation but time will tell.


----------



## skc

robusta said:


> Some would say 33.41% of the portfolio in MCE is speculation but time will tell.




You only have a small portfolio, but 33.41% is probably a bit too heavy, whatever MCE is. Esp if you also hold it in your super. 

If I have a portfolio this size and is managing it actively, I would allocate say $25k on longer term holds and trade $5k on short term basis. With the aim of that $5k being able to pay for the interest over the year.


----------



## robusta

skc said:


> You only have a small portfolio, but 33.41% is probably a bit too heavy, whatever MCE is. Esp if you also hold it in your super.




Yes I agree MCE is 25.3% of my super (FGE now 35.7%- a almost total reversal of % from a couple of months ago) and I have a lot more capital commited to MCE than FGE due to profit taking of FGE @$6.50). I think I may take some profits with MCE when times do not seem so dire.




skc said:


> If I have a portfolio this size and is managing it actively, I would allocate say $25k on longer term holds




I want to go long on every investment, when I sell after a short time it means I stuffed up. 



skc said:


> and trade $5k on short term basis. With the aim of that $5k being able to pay for the interest over the year.




Many are quite succesful at short term trading but I do not see any edge I could deploy to ensure decent returns in this manner. Maybe just does not suit my personality but I respect anyone who can suceed at it.

It may take a couple of years to come to fruition but the dividend yield should eventually cover the interest and my $40/week contribution will allow for more investments to be purchased at reasonable prices.


----------



## McLovin

robusta said:


> You said it yourself SOO is a bit of a spec play, while I will allow about 10% of the portfolio to be in spec companies I also did not intend to be fully invested so soon then the recent correction happened.....
> It is good to have some capital in reserve for future opportunities.
> 
> Some would say 33.41% of the portfolio in MCE is speculation but time will tell.




Fair enough, FWIW I have far far less that 10% in SOO, while the actual dollar amount is probably large the nature of the stock (and business/industry) meant I put very little %wise of my capital in it.

I was the same with MCE, I put it at the speculative end and adjusted my weighting accordingly. I'm down a bit on where I bought MCE.


----------



## robusta

After reading the financial press, listening to the pundits and of course reading Aussie Stock Forums I have come to some conclusions regarding the short term direction of the market. Basically I can see three options:

1) The ASX200 will head back towards 5000

2) The market will "range trade" for a while

3) The market will crash 

My strategy for options 1 & 2 are the same - Sit back, collect dividends and look for opportunities to take profits.

Strategy for option 3 is mostly the same as 1 & 2 except I would like to buy more stocks in this enviromemt. As I only have ~ 10% of my original capital left to invest I am considering getting a margin loan to take advantage of the possible crash.

The two main self imposed rules for this loan would be:
1) Only to be used when value is obvious ie a major crash or correction

2) Only use up to 50% of available margin


----------



## investorpaul

To be honest I would just spend some time observing your current positions and learning more about investing.

Their will always be opportunities with or without the market crashing.

You became fully investing within a relatively short period of time and I know it can feel frustrating because you see more opportunities present themselves, however I do believe a wait and see approach for the time being is warranted.

The above is not advice, just my general thoughts in regard to the information you have posted.


----------



## skc

robusta said:


> No worries there SKC it is a line of credit on my mortgage so no margin calls, only the chance of terrible losses or incredible profits  or more likely something inbetween.






robusta said:


> Cheers skc, I would have a little trouble sleeping with a concentraded portfolio that was nearing a margin call






robusta said:


> After reading the financial press, listening to the pundits and of course reading Aussie Stock Forums I have come to some conclusions regarding the short term direction of the market. Basically I can see three options:
> 
> 1) The ASX200 will head back towards 5000
> 
> 2) The market will "range trade" for a while
> 
> 3) The market will crash
> 
> My strategy for options 1 & 2 are the same - Sit back, collect dividends and look for opportunities to take profits.
> 
> Strategy for option 3 is mostly the same as 1 & 2 except I would like to buy more stocks in this enviromemt. As I only have ~ 10% of my original capital left to invest I am considering getting a margin loan to take advantage of the possible crash.
> 
> The two main self imposed rules for this loan would be:
> 1) Only to be used when value is obvious ie a major crash or correction
> 
> 2) Only use up to 50% of available margin




It's good to have a plan, but a plan needs to be clearly defined so it can be followed. This will avoid the danger of making decisions on the run and in the heat of battle. 

If you do want to use margin loan (even though you didn't plan that at the beginning), you need to really think hard about some clear rules and boundaries. 

- How do you determine what the market has done in relation to the three possible outcome? A particular point level? Velocity of movement? If market falls to 4000 tomorrow, is it still ranging or is it crashing?

- When will you action? Will you start buying 1 day after the crash? 1 week? 

- What does it mean for "obvious value"? Should you allow greater margin of safety before entry?

- What is your ability to pay interest? Has that got a bearing on how much margin you use?

- With margin you can no longer afford to be long term holder regardless of market price, as someone else will do the selling for you if you won't. Where is that line? Will you institute a price stop? Do you need to review your position size? 

- And last but not least... should you really use margin? Should you wait a bit longer to see how your current positions pan out first? It's easy to buy but trade management is just as important. 

- Bring out a chart of the great depression or the Japan's lost decade, and accept what is possible (and probable imo). Then check margin loan is still the right idea if that comes to pass. 

To be honest I agree with InvestorPaul...Your signature says 

If a bargain cannot be obtained today, the market will open again tomorrow offering you a fresh new opportunity and a new price.

You should observe that. And may be a slightly different version will also be helpful

If a bargain on XXX cannot be obtained, the market will offer other bargains like YYY and ZZZ.

There are always bargains on the market, and you should trust your own ability to make money in a steady market, and not needing to rely on big bets in volatile crashing markets to either win big or lose big.

Good luck.


----------



## So_Cynical

robusta said:


> After reading the financial press, listening to the pundits and of course reading Aussie Stock Forums I have come to some conclusions regarding the short term direction of the market. Basically I can see three options:
> 
> 1) The ASX200 will head back towards 5000
> 
> 2) The market will "range trade" for a while
> 
> 3) The market will crash
> 
> My strategy for options 1 & 2 are the same - Sit back, collect dividends and look for opportunities to take profits.
> 
> Strategy for option 3 is mostly the same as 1 & 2 except I would like to buy more stocks in this enviromemt. As I only have ~ 10% of my original capital left to invest I am considering getting a margin loan to take advantage of the possible crash.
> 
> The two main self imposed rules for this loan would be:
> 1) Only to be used when value is obvious ie a major crash or correction
> 
> 2) Only use up to 50% of available margin




Originally i intended to get a Margin loan with a nice safe 20 or 30% of room to move should the market head south...long story short that was back in 2007 and if i had taken that loan i would of been totally wiped out.

The margin calls would of forced me to sell and realise losses...losses since recovered because i wasn't a forced seller in the GFC and was subsequently able to trade my way out due mostly to a couple of good calls.

On the flip side of that...a margin loan in early 2009 would of made me a heap of money and would of perhaps doubled my net worth by now. (as in double what it currently is) because March 2009 to October 2011 net worth is like 350% up. 

Timing...who knows these things :dunno: i certainly don't.


----------



## robusta

investorpaul said:


> To be honest I would just spend some time observing your current positions and learning more about investing.
> 
> Their will always be opportunities with or without the market crashing..




True - just a lot more opportunities to buy good companies on the cheap when the market crashes.



investorpaul said:


> You became fully investing within a relatively short period of time and I know it can feel frustrating because you see more opportunities present themselves, however I do believe a wait and see approach for the time being is warranted.
> 
> The above is not advice, just my general thoughts in regard to the information you have posted.




Thankyou for that opinion investorpaul but some opportunities are too good to pass up, like for example buying any of the big four banks in the middle of the GFC for example.


----------



## ROE

robusta said:


> After reading the financial press, listening to the pundits and of course reading Aussie Stock Forums I have come to some conclusions regarding the short term direction of the market. Basically I can see three options:
> 
> 1) The ASX200 will head back towards 5000
> 
> 2) The market will "range trade" for a while
> 
> 3) The market will crash
> 
> My strategy for options 1 & 2 are the same - Sit back, collect dividends and look for opportunities to take profits.
> 
> Strategy for option 3 is mostly the same as 1 & 2 except I would like to buy more stocks in this enviromemt. As I only have ~ 10% of my original capital left to invest I am considering getting a margin loan to take advantage of the possible crash.
> 
> The two main self imposed rules for this loan would be:
> 1) Only to be used when value is obvious ie a major crash or correction
> 
> 2) Only use up to 50% of available margin




There is another way..
You could also let most of your cash sit around earning 5.5% and write some cheap
ass options and if **** fall down you end up owning the stock pretty cheap else collect nice premium 

I be careful with margin with this market wild volatility, it only take one major panic briefly for you to face margin call and if you don't have the cash it could be costly


----------



## LifeChoices

robusta said:


> *NEW INVESTMENT*
> 
> FGE - Forge Group
> 
> Yet another business I hold in my SMSF and my second largest holding next to MCE at that. FGE is one of those rare businesses with the ability to retain a lot of profits and  maintain a great ROE. If history is anything to go by I think FGE is worth about $8.00 and I should have loaded up and made it one of my largest holdings but the uncertainty of a tightening labour market and a unproven ability to win larger contracts decided how much capital to allocate.
> 
> Portfolio Position
> 
> Starting line of credit $30,000.00
> 
> Bought
> 7,142 x TSM @ $0.66 = $4713.72   (25/07/11)
> 546   x  MCE @ $6.95 = $3797.70   (25/07/11)
> 853   x CCP  @ $4.48 = $3821.44  (26/07/11)
> 385   x FGE  @ $5.37 = $2067.45   (26/07/11)
> 291   x FGE  @ $5.34 = $1553.94   (27/07/11)
> 
> 
> Brokerage Paid = $60.00
> 
> Lenders Mortgage insurance $667.81 paid
> 
> 
> All ords @  25/07/11  4603.80




You must be hurt'n buddy. Are you sure about this margin loan thingo you are rabbiting on about? I know you also have MCE. It's like some stockbroker in China read this post and said to himself  "I'm going to stick the boot into Robusta."

FGE today is selling for $4.780 I'm sure it's undervalued,  but atm that's all anyone is willing to pay for it. What a difference a couple of months make? 

Do you use stops at all Robusta?


----------



## robusta

skc said:


> It's good to have a plan, but a plan needs to be clearly defined so it can be followed. This will avoid the danger of making decisions on the run and in the heat of battle.




Never a wiser word said.



skc said:


> If you do want to use margin loan (even though you didn't plan that at the beginning), you need to really think hard about some clear rules and boundaries.
> 
> - How do you determine what the market has done in relation to the three possible outcome? A particular point level? Velocity of movement? If market falls to 4000 tomorrow, is it still ranging or is it crashing?




They tell you on the news, lead story "Today the market crashed" 

Jokes aside I think I would be making that decision more on a company specific basis and with a eye on a decent margin of safety




skc said:


> - When will you action? Will you start buying 1 day after the crash? 1 week?




Not so worried about timing but I will be trying to pick the bottom as close as I can get.


-







skc said:


> What does it mean for "obvious value"? Should you allow greater margin of safety before entry?




Obvious value just smack you in the face like a bank at 10% dividend yield or BHP at $25.00, CSL at $18.00




skc said:


> - What is your ability to pay interest? Has that got a bearing on how much margin you use?




Yes definately will be covered for almost any emergency



skc said:


> - With margin you can no longer afford to be long term holder regardless of market price, as someone else will do the selling for you if you won't. Where is that line? Will you institute a price stop? Do you need to review your position size?




No, definately no stop loss. Will just have to build in enough margin that would allow me to cover a further significant fall in market price.



skc said:


> - And last but not least... should you really use margin? Should you wait a bit longer to see how your current positions pan out first? It's easy to buy but trade management is just as important.




True it is difficult to sell but one day the market will offer me prices for companies I hold that will be extremely overvalued.



skc said:


> - Bring out a chart of the great depression or the Japan's lost decade, and accept what is possible (and probable imo). Then check margin loan is still the right idea if that comes to pass.
> 
> To be honest I agree with InvestorPaul...Your signature says
> 
> If a bargain cannot be obtained today, the market will open again tomorrow offering you a fresh new opportunity and a new price.
> 
> You should observe that. And may be a slightly different version will also be helpful
> 
> If a bargain on XXX cannot be obtained, the market will offer other bargains like YYY and ZZZ.
> 
> There are always bargains on the market, and you should trust your own ability to make money in a steady market, and not needing to rely on big bets in volatile crashing markets to either win big or lose big.
> 
> Good luck.




There are always bargains on the market, but if you look at a chart of the last 100 years you would find the best bargains in periods when the market crashes.


----------



## robusta

LifeChoices said:


> You must be hurt'n buddy. Are you sure about this margin loan thingo you are rabbiting on about? I know you also have MCE. It's like some stockbroker in China read this post and said to himself  "I'm going to stick the boot into Robusta."




No not really hurting, the only thing that will hurt is if I am totally wrong and MCE turns out to be a to be a low margin company with no growth prospects. 




LifeChoices said:


> FGE today is selling for $4.780 I'm sure it's undervalued,  but atm that's all anyone is willing to pay for it. What a difference a couple of months make?




True FGE is a great quality cyclical stock but at times like these you can pick up larger companies with a clear competitive advantage on the cheap.




LifeChoices said:


> Do you use stops at all Robusta?




No


----------



## LifeChoices

I'm thinking of getting some of those rose colored tinted glasses you are wearing... can you tell me where you got them from?


----------



## robusta

LifeChoices said:


> I'm thinking of getting some of those rose colored tinted glasses you are wearing... can you tell me where you got them from?




What can I say? I am a glass half full kinda guy.


----------



## LifeChoices

robusta said:


> No not really hurting, the only thing that will hurt is if I am totally wrong and MCE turns out to be a to be a low margin company with no growth prospects.




What is your definition of "totally wrong". My definition is 20% down on what I paid for it - that's my standard stop rule.

You don't have stop losses - please explain (Pauline Hanson voice)


----------



## robusta

LifeChoices said:


> What is your definition of "totally wrong". My definition is 20% down on what I paid for it - that's my standard stop rule.




Well IMO it is the difference between price and value. The market is down about 20% from a few months ago but within it there are stocks that will be worth heaps more in a few years. The market may throw up prices due to company specific issues and/or due to macro issues that have almost nothing to do with the profits a individual company will make in the future.




LifeChoices said:


> You don't have stop losses - please explain (Pauline Hanson voice)




In a nutshell if the price falls on a good quality company I hold I would be more inclined to buy more of a "good thing" at a cheaper price rather than sell to avoid a short term paper loss.

This tactic definately makes me look stupid in the short term and as for the long term...?


----------



## LifeChoices

robusta said:


> Well IMO it is the difference between price and value. The market is down about 20% from a few months ago but within it there are stocks that will be worth heaps more in a few years. The market may throw up prices due to company specific issues and/or due to macro issues that have almost nothing to do with the profits a individual company will make in the future.




You seem to be very good with terms but you have trouble defining them.

Price is easy to understand. It's what you pay for something at a point in time.

I just don't get your definition of value? I think you are talking riddles.

Can you define the value of FGE or MCE to anyone else? What is your end game - what do you want to achieve?

At what price would you sell those shares? Would you ever sell those shares. What is motivating you to post on this forum about these investments/gambles?


----------



## skc

robusta said:


> Not so worried about timing but I will be trying to pick the bottom as close as I can get.




What I meant by timing was how soon you deploy your capital. You used up your $30k LOC very quickly and evidently didn't pick the bottom on most of your positions.

With Europe in full blown crisis mode, there is nothing wrong with waiting that to be resolved one way or another. Sure the overall market will bolt up on positive news but there is always time. Jessie Livermore said the first and last 20% of the move are the hardest to catch and the most expensive to try to catch... and that's true for either trading or investing. 



robusta said:


> Obvious value just smack you in the face like a bank at 10% dividend yield or BHP at $25.00, CSL at $18.00




Bank is at 10% gross yield now...



robusta said:


> True it is difficult to sell but one day the market will offer me prices for companies I hold that will be extremely overvalued.




That day may never came for many shares. For example I sold my position in ZGL when it got to ~60c. It wasn't over valued at the time and certainly not extremely overvalued - even with pumping by Montgomery! 

Then something changed for the worst and they are now at 30c. Time can be your worst enemy because the longer you hold a position, the more things can change in the future. 



robusta said:


> There are always bargains on the market, but if you look at a chart of the last 100 years you would find the best bargains in periods when the market crashes.




After. You find bargains *AFTER *the crash. And you will find that there are plenty of time to find those bargains.

To be honest your portfolio isn't that bad except for MCE. And your portfolio would be close enough to market return if you didn't buy that second parcel of MCE. And you would have outperformed the market if you simply cut MCE at the first opportunity.

Some good lessons there imho. Good luck.


----------



## Intrinsic Value

skc said:


> What I meant by timing was how soon you deploy your capital. You used up your $30k LOC very quickly and evidently didn't pick the bottom on most of your positions.
> 
> With Europe in full blown crisis mode, there is nothing wrong with waiting that to be resolved one way or another. Sure the overall market will bolt up on positive news but there is always time. Jessie Livermore said the first and last 20% of the move are the hardest to catch and the most expensive to try to catch... and that's true for either trading or investing.
> 
> 
> 
> Bank is at 10% gross yield now...
> 
> 
> 
> That day may never came for many shares. For example I sold my position in ZGL when it got to ~60c. It wasn't over valued at the time and certainly not extremely overvalued - even with pumping by Montgomery!
> 
> Then something changed for the worst and they are now at 30c. Time can be your worst enemy because the longer you hold a position, the more things can change in the future.
> 
> 
> 
> After. You find bargains *AFTER *the crash. And you will find that there are plenty of time to find those bargains.
> 
> To be honest your portfolio isn't that bad except for MCE. And your portfolio would be close enough to market return if you didn't buy that second parcel of MCE. And you would have outperformed the market if you simply cut MCE at the first opportunity.
> 
> Some good lessons there imho. Good luck.




MCE is the elephant in the room. 

It could prove to be a good long term play but it is pretty speculative at the moment.

I still hold MCE bought at 4 dollars and 5 dollars bought last year and in hindsight I should have sold.

At the time I was worried about paying capital gains tax of 50 percent


----------



## craft

robusta said:


> In a nutshell if the price falls on a good quality company I hold I would be more inclined to buy more of a "good thing" at a cheaper price rather than sell to avoid a short term paper loss.
> 
> This tactic definately makes me look stupid in the short term and as for the long term...?




Your framework seems to be to exploit market pricing where it differs from your estimation of underlying value. Except for using leverage I agree with the framework.

MCE is either a symptom of a problem in your approach or a validation of it. But which?

Time will eventually give you this answer. But if you want to be proactive you should really be examining exhaustively the mechanism that puts you into conflict with the market – your valuation method.

Exactly how do you value MCE?


----------



## Tysonboss1

LifeChoices said:


> Price is easy to understand. It's what you pay for something at a point in time.
> 
> I just don't get your definition of value?




Price and Value are two very different things,

No doubt throughout your own life you have looked at the prices people offer various products out in the market place (Cars, food etc ) and come to a decision whether the item is Good Value or not. the same goes with the price of companies on the share market.

Some times the price a company is selling at will seem expensive when compared to what it will produce for the share holder over time, other times it will appear cheap compared to what it will produce.

A value focused investor spends his time trying to assess the earning power of a company and based on the likly profits and how the company allocates these profits comes up with a $ figure of what the company is worth to him, this may be higher or lower than it's current price.


----------



## investorpaul

robusta said:


> True - just a lot more opportunities to buy good companies on the cheap when the market crashes.
> 
> 
> 
> Thankyou for that opinion investorpaul but some opportunities are too good to pass up, like for example buying any of the big four banks in the middle of the GFC for example.




You only know the bank were a "opportunity too good to pass up" due to hindsight.

If you were investing during the GFC how would you have known when the low was in or when it was the right time to buy into this "opportunity".

I stand by the fact that opportunities exist in every market (except if you only want a top 20 stock)


----------



## sinner

ROE said:


> There is another way..
> You could also let most of your cash sit around earning 5.5% and write some cheap
> ass options and if **** fall down you end up owning the stock pretty cheap else collect nice premium




On reading this thread, that was my immediate thought as well. Move into an equity space (NYSE? TSX? Euronext?) with more options liquidty and sell options are the price you would be willing to buy at. Seems much more rational to me.


----------



## robusta

LifeChoices said:


> You seem to be very good with terms but you have trouble defining them.
> 
> Price is easy to understand. It's what you pay for something at a point in time.
> 
> I just don't get your definition of value? I think you are talking riddles.




Despite the bad press I use the formula in Montgomerys book - along with a large grain of salt.




LifeChoices said:


> Can you define the value of FGE or MCE to anyone else?




FGE ~ $6.8 - $8.50, MCE ~ $6.00-$8.50



LifeChoices said:


> What is your end game - what do you want to achieve?




Well investing is a nice hobby and keeps me out of the pub but in the end I would like to make money.



LifeChoices said:


> At what price would you sell those shares? Would you ever sell those shares.




Yes I would sell shares but only if I consider them to be; 1) overvalued, 2)The fundamentals change or 3) a much better oportunity comes along.




LifeChoices said:


> What is motivating you to post on this forum about these investments/gambles?




Stops me from speculating - hopefully


----------



## robusta

skc said:


> What I meant by timing was how soon you deploy your capital. You used up your $30k LOC very quickly and evidently didn't pick the bottom on most of your positions.




I still have ~10% left (just over $3000.00). I did not pick the bottom but still got some good prices.



skc said:


> With Europe in full blown crisis mode, there is nothing wrong with waiting that to be resolved one way or another. Sure the overall market will bolt up on positive news but there is always time. Jessie Livermore said the first and last 20% of the move are the hardest to catch and the most expensive to try to catch... and that's true for either trading or investing. .




True, I just want the capital available when/if more opportunities present themselves.




skc said:


> Bank is at 10% gross yield now....




I would love to buy CBA and ANZ, just looking to get in a fair bit cheaper.





skc said:


> That day may never came for many shares. For example I sold my position in ZGL when it got to ~60c. It wasn't over valued at the time and certainly not extremely overvalued - even with pumping by Montgomery!
> 
> Then something changed for the worst and they are now at 30c. Time can be your worst enemy because the longer you hold a position, the more things can change in the future.




Good point and the lesson I am learning is to look for more definate competitive advantage not just good metrics




skc said:


> After. You find bargains *AFTER *the crash. And you will find that there are plenty of time to find those bargains.




Are we in a crash or correction?




skc said:


> To be honest your portfolio isn't that bad except for MCE. And your portfolio would be close enough to market return if you didn't buy that second parcel of MCE. And you would have outperformed the market if you simply cut MCE at the first opportunity.
> 
> Some good lessons there imho. Good luck.




Bought a third parcel of MCE as well, it should be a really interesting next 6 months.


----------



## robusta

Intrinsic Value said:


> MCE is the elephant in the room.
> 
> It could prove to be a good long term play but it is pretty speculative at the moment.
> 
> I still hold MCE bought at 4 dollars and 5 dollars bought last year and in hindsight I should have sold.
> 
> At the time I was worried about paying capital gains tax of 50 percent




Same with me im my SMSF except the capital gains tax would have only been 15%



craft said:


> Your framework seems to be to exploit market pricing where it differs from your estimation of underlying value. Except for using leverage I agree with the framework.
> 
> MCE is either a symptom of a problem in your approach or a validation of it. But which?
> 
> Time will eventually give you this answer. But if you want to be proactive you should really be examining exhaustively the mechanism that puts you into conflict with the market – your valuation method.
> 
> Exactly how do you value MCE?




Time will tell, the method outlined in Montgomerys book seems logical to me, about the only thing I disagree with is looking into the future using analyst forecasts.




investorpaul said:


> You only know the bank were a "opportunity too good to pass up" due to hindsight.
> 
> If you were investing during the GFC how would you have known when the low was in or when it was the right time to buy into this "opportunity".
> 
> I stand by the fact that opportunities exist in every market (except if you only want a top 20 stock)




We are never going to find the perfect time to buy but sometimes like in the GFC "the baby gets thrown out with the bathwater" and you can pick up excellent businesses on the cheap. For example I dont care what is happening in Europe if ANZ falls below $20.00 I would have to buy, these guys will be around in 20 years and making heaps more money.



sinner said:


> On reading this thread, that was my immediate thought as well. Move into an equity space (NYSE? TSX? Euronext?) with more options liquidty and sell options are the price you would be willing to buy at. Seems much more rational to me.




Sorry for the terrible pun but I have not considered that option


----------



## sinner

robusta said:


> if ANZ falls below $20.00 I would have to buy, these guys will be around in 20 years and making heaps more money.
> 
> Sorry for the terrible pun but I have not considered that option




Just wondering now, if you never considered it because you don't like the idea or because you don't understand the options space?

Just as an example: 

You would be happy to buy $5000 worth of ANZ at $19, so you write (i.e. sell) the equivalent amount of ANZ Dec 2011 $19 puts into the market. If you reach the option expiry date and the price of ANZ is above your $19 strike, then the options expire worthless to the buyer and you collect the premium. If, on the other hand ANZ falls to $19, you will probably be assigned $5000 worth of ANZ at $19 plus the premium associated with the options you sold. 

In my mind, for a trader like yourself who has conviction to step in and buy at specific prices without any qualms, this seems like a far more lucrative strategy. You get to express your view on the market through shorting the puts. Even if the price never goes back there, you can profit from your view. You don't have to sit around waiting for opportunities, you can short the puts all year long collecting premium until you are assigned at the price you actually wanted.

I always ask people who say "if gold ever went back to $700 I'd buy all I could", why aren't you shorting $700 puts then? The answer is because even though they say they would back up the truck, they actually don't have the conviction to be assigned the underlying instrument at their stated price level!

In the ASX there aren't a lot of stocks where you can do such, pretty much restricted to the ASX20. But in other markets, like European, Korean, Hong Kong or American there are plenty of businesses outside the "top 20" which have deep options markets.

Just my thoughts on the matter, certainly not to be considered as advice!


----------



## skc

robusta said:


> Are we in a crash or correction?




We haven't crashed yet. We have all the ingredients for a big crash, and I certainly believe that the probability of a crash is higher than a speedy recovery. 

I am open to the idea that things might recover, but with some pretty bad macro threats that's good enough reason for me to stay out. Again, it's easier to stay out if you are not afraid of missing the beginning of a rally.



robusta said:


> Bought a third parcel of MCE as well, it should be a really interesting next 6 months.




It is 'cheaper' to buy something at $1.2 when there is much more certainty, than buying the same thing at $1 when there are significant uncertainties and risks, imo.


----------



## ROE

robusta: Sinner give a good strategy to buy your stock at a certain price if
you are dead set on getting a stock at a certain price...

but be prepared to have the cash ready to be assigned.
sometimes early if the options is deep in the money for the holder...

as in ANZ exercise at $19 bucks but the stock could trades at $15 bucks or $16
and they most likely to exercise their right early...

it is rare and next to zero chance  for early assignment if the options isn't deep in the money because they lose time premium but deep in the money options, time premium isn't an issue for them...


----------



## nomore4s

Hi Robusta,

While I commend you on putting forward your portfolio in a public forum there is imo a few areas you need to look at.

1. Market conditions
Your strategy is best suited to a bull market, the current conditions do not suit this strategy imo. Using a $30k loan to buy long term stocks with a buy & hold strategy during a flat/bear phase in the market is opening yourself to unwarranted risks, especially when starting the portfolio up, without even considering hold costs (interest payments, missed opportunity costs etc etc).

You need to have some way to gauge and evaluate market conditions and the effect those conditions have on you portfolio. Like SKC said sometimes it is more profitable to miss the first part of a move.

There will be a time when true bargains are available and this sort of strategy will bring in a very good return but imo we are nowhere near that stage.

2. Risk
You need to understand and control risk, and again imo this aspect is very lacking in this portfolio. While I don't mind investing long-term in the right conditions without stops I would never do it in the current conditions with leverage and I would never be fully invested under current conditions with leverage and no stops.
When starting a portfolio up like yours it is probably better to drip feed your capital into the market to help counter some serious portfolio heat should we encounter a serious drop in the market and with the current risks surrounding Europe and the US this is not out of the realms of probability.
If the market does tank tomorrow and your portfolio halves you are left carrying a debt or a number of stocks that could take years to get back to breakeven and either way you are left paying interest on your loan till repaid or the market recovers.

3. Return
Investing is all about generating a return and one of the big problems for you with this sort of strategy is you need to return around 8%pa to end up in front, now during a raging bull market this is probably going to be no problem but during current market conditions you will be lucky not to lose 8%pa.
It is going to be very very hard to get in front with the way the markets are atm and paying 7.5%pa in interest makes it harder, especially with a buy & hold type strategy.
IMO you would be well worth having a good look at SKC's fundamental strategy & have some long discussions with SKC about how best to pull returns from the market using a fundamental approach as his method is one of the best I have seen.
IMO you need to be more active to generate returns using leverage the way you are.

Good luck and I hope you continue to look at ways to improve your trading/investing.


----------



## Ves

sinner said:


> Just wondering now, if you never considered it because you don't like the idea or because you don't understand the options space?
> 
> Just as an example:
> 
> You would be happy to buy $5000 worth of ANZ at $19, so you write (i.e. sell) the equivalent amount of ANZ Dec 2011 $19 puts into the market. If you reach the option expiry date and the price of ANZ is above your $19 strike, then the options expire worthless to the buyer and you collect the premium. If, on the other hand ANZ falls to $19, you will probably be assigned $5000 worth of ANZ at $19 plus the premium associated with the options you sold.
> 
> In my mind, for a trader like yourself who has conviction to step in and buy at specific prices without any qualms, this seems like a far more lucrative strategy. You get to express your view on the market through shorting the puts. Even if the price never goes back there, you can profit from your view. You don't have to sit around waiting for opportunities, you can short the puts all year long collecting premium until you are assigned at the price you actually wanted.
> 
> I always ask people who say "if gold ever went back to $700 I'd buy all I could", why aren't you shorting $700 puts then? The answer is because even though they say they would back up the truck, they actually don't have the conviction to be assigned the underlying instrument at their stated price level!
> 
> In the ASX there aren't a lot of stocks where you can do such, pretty much restricted to the ASX20. But in other markets, like European, Korean, Hong Kong or American there are plenty of businesses outside the "top 20" which have deep options markets.
> 
> Just my thoughts on the matter, certainly not to be considered as advice!



Sinner,

I really like this idea on face value. But I can see a few issues:

1.   The depth of the options market is basically limited to the ASX 20 in Australia. 
2.   You lose control over when you buy. You are entering into a contract in    advance.  If the stock price falls sharply in the mean time for fundamental reasons  (that impact on your valuation) you are at risk at buying at the wrong price. However, you may argue that research should have shown this in the first place, but I refer to events such as COH's recent product re-call.
Whilst, fundamental investors buy for "non-technical or chart reasons" some will also wait for price support. 
3.   Not having researched or even used this strategy, do mainstream brokers such as Commsec allow access to the type of options that would make this strategy possible for someone who is, as you said, looking to buy smaller positions (ie $5k or less)?

Can you see please share your thoughts on points 2 and 3?

edit: I also forgot to ask how the premiums are calculated? Are these substantial? do they significantly change depending on the price of the underlying share? For instance, what is stopping someone from writing ANZ options at  $6 tomorrow? (I suspsect the answer is that no one would take up the other side of the option).


----------



## sinner

Ves said:


> Sinner,
> 
> Can you see please share your thoughts on points 2 and 3?




2. How much risk you take is up to you. If you can't handle buying $X amount at $Y price then the trade needs to be structured differently to just selling puts. You could buy some cheap further OTM calls to hedge against catastrophe for example. But this will eat into profit potential, that is of course the tradeoff. The main point is, how much risk you take is up to you. If you can't afford to be assigned $X amount at $Y price then you shouldn't be executing the trade. The example strategy I gave above was specifically to express the view "I would pay $X amount for stock ABC at $Y price before $N date" and nothing else.

3. I just used $5k as an example. You need to work out which brokers and where yourself! But with the recent introduction of better option granularity at the ASX (*100 instead of *1000) it could be worth looking into.

As for your edit, that is options 101 and really even further off topic than I have already derailed poor robustas thread. Worth doing some reading if you are really interested.


----------



## Macros

Sinner,

Whilst I can see a benefit of that approach, I don't think you are getting something for nothing. If you agree to purchase something at a future date, you have lost your optionality. Therefore the value of selling those options must have greater value than the optional decision to purchase. Factors may change and you may not wish to purchase at the future date - depending on your perception of value.

If I were looking at such an approach, I'd most likely prefer to purchase preference shares (aka Buffett stye) and get the interest without the compulsory purchase.

I see myself as a value investor but I have a completely different take on the banks. I have CBA put options at $44 expiring next year. My view is that CBA could be considerably lower before expiry. For me, I see more value in purchasing options, either put/call, if you have a strong view and there is sufficient volatility - although you need to be right.


----------



## Tysonboss1

Macros said:


> I see myself as a value investor but I have a completely different take on the banks. I have CBA put options at $44 expiring next year. My view is that CBA could be considerably lower before expiry. For me, I see more value in purchasing options, either put/call, if you have a strong view and there is sufficient volatility - although you need to be right.




It is just a difference of opinion and also different time frames, your purchase of a cba put is really a short term Bet rather than an investment, His sale of a put may also be a Bet against you or it may be part of a long term investment operation.

You believe short term (within the life of your option) that CBA share price will fall far enough below $44 with a set time frame to cover your premium you paid and generate some profit for you.

The guy on the other end may believe that at $44 dollars Cba represents good value, and he decides to take a longer term approach and decides to invest in 1000 shares.

Instead of purchasing the share on market for $44,000 today, He instead sells you a $44 Jan 2012 put for $3100 and keeps the bulk of his $44,000 earning interest at 6%. 

If you are right and the put expires in the money, he takes your stock at $44 and holds just as he would if he bought today, except he has another $3500 in the bank from your premimum and interest on his capital, he is happy.

If the stock goes higher, he keeps his money earning 6% and adds your $3100 premimum to his cash pile, he is happy.


----------



## Macros

All investing is making bets. You are betting that you understand where the future direction is headed. Yes it is a short-term position, but this is a hedge which allows me to accumulate for more long term purchases.

The $44 options are roughly 100% up from my purchase price. I'd sell them now, except that I can still see considerable downside in the banks value. The put seller may have offset some of his loss, but it is still a loss.


----------



## Tysonboss1

Macros said:


> 1, All investing is making bets. You are betting that you understand where the future direction is headed. Yes it is a short-term position, but this is a hedge which allows me to accumulate for more long term purchases.
> 
> 2, The $44 options are roughly 100% up from my purchase price. I'd sell them now, except that I can still see considerable downside in the banks value. The put seller may have offset some of his loss, but it is still a loss.




1, We have discussed this before, There is a difference between a Bet and an Investment operation.

2, I would say that the investor that sold a put at $44 instead of Buying the stock at $44 has not lost anything. If the option was exercised today he would be infront.


----------



## Macros

Tysonboss1,

Happy to disagree. I think we could probably disagree about most things 

Firstly, we speculate that the world will be the same tomorrow as it is today. Investment is about perceptive speculation about the future. You can call it as you wish.

Secondly, yes if the person selling put options for $44 had to buy them today, they are no worse off. However, the options don't expire today, they expire next year and are American style.


----------



## robusta

Interesting discussion about options but I am afraid I have nothing to add except to say I agree with the Tysonboss1 point of view.
I have no idea what share prices are going to do in the next 12 months and I am only interested in buying when companies sp reaches a price in my buy zone.
Long dated (5 years +) options may interest me but there does not seem to be much liquidity there.

anyhow

*NEW INVESTMENT*

BHP- BHP Billiton Limited

Picked up 85 shares @ $35.60

What can I say, good ROE, stuff all debt, great cash flow, solid earning history and a culture of investing with a eye on the future.

Now the portfolio is fully invested

Things have been extremely busy for me lately but I will try to update the portfolio shortly, suffice to say at the moment there is a lot more red ink than green


----------



## sinner

Macros said:


> Sinner,
> 
> Whilst I can see a benefit of that approach, I don't think you are getting something for nothing. If you agree to purchase something at a future date, you have lost your optionality. Therefore the value of selling those options must have greater value than the optional decision to purchase. Factors may change and you may not wish to purchase at the future date - depending on your perception of value.




Who said you are getting something for nothing? Not me! But I did say you can receive a premium for expressing your view on the market, even if the current price of the underlying is much more costly than what you would be willing to pay for it.

I agree 100%, factors may change, and that is why I don't normally discuss this strategy *anywhere*. The key here is someones willingness to step in at a price and buy with conviction. How many times do I have to point that out? For these sort of traders, it is a potentially lucrative strategy. For pretty much everyone else, it is picking up pennies in front of a steamroller.

I think Tysonboss has explained the dynamics of the situation pretty well. I would only add that the option seller, just like the option buyer, has the capability to cancel their view on the market and buy their puts back at  the current market rate, whenever they so choose.



> If I were looking at such an approach, I'd most likely prefer to purchase preference shares (aka Buffett stye) and get the interest without the compulsory purchase.




Well, why don't you? Oh wait, those sort of deals aren't generally available for retail.



> I see myself as a value investor but I have a completely different take on the banks. I have CBA put options at $44 expiring next year. My view is that CBA could be considerably lower before expiry. For me, I see more value in purchasing options, either put/call, if you have a strong view and there is sufficient volatility - although you need to be right.




Geeez man, I just used ANZ @ $19 as an example, which robusta provided himself! Next time I will just call it XYZ @ $1. 

As for where you see value, sure man, whatever floats your boat. I am not advocating everyone start selling puts on everything! It is just an example!


----------



## Tysonboss1

robusta said:


> BHP- BHP Billiton Limited
> 
> Picked up 85 shares @ $35.60
> 
> What can I say, good ROE, stuff all debt, great cash flow, solid earning history and a culture of investing with a eye on the future.
> 
> Now the portfolio is fully invested
> 
> Things have been extremely busy for me lately but I will try to update the portfolio shortly, suffice to say at the moment there is a lot more red ink than green




Your not really working with enough capital to have a really good go at it, But If I wanted to purchase say 1000 BHP and I was happy to pay $35.60 but I was thinking there was a decent chance of further down side share price movements, rather than buy them today I would have sold a DEC $35.50 Put for $2.20 and pocket $2200 in the mean time while I wait and see where they are in DEC.

Worst thing that can happen is you save yourself $2200 and 3 months interest on the pruchase or you walk away with a clear $2200 profit.


----------



## robusta

Tysonboss1 said:


> Your not really working with enough capital to have a really good go at it, But If I wanted to purchase say 1000 BHP and I was happy to pay $35.60 but I was thinking there was a decent chance of further down side share price movements, rather than buy them today I would have sold a DEC $35.50 Put for $2.20 and pocket $2200 in the mean time while I wait and see where they are in DEC.
> 
> Worst thing that can happen is you save yourself $2200 and 3 months interest on the pruchase or you walk away with a clear $2200 profit.




OK but there is also a decent chance the sp could be ~ $42.00 in Dec, where would I be with my put option then?

$3026.00 is all relative isnt it? To some it is not much capital to others...


----------



## LifeChoices

robusta said:


> OK but there is also a decent chance the sp could be ~ $42.00 in Dec, where would I be with my put option then?
> 
> $3026.00 is all relative isnt it? To some it is not much capital to others...




I bet you $42 it won't.

But you are right about $3026.00 being relative. In 2011 it could probably buy an old but ok commodore in 2015 it may get you a decent milkshake?


----------



## robusta

LifeChoices said:


> I bet you $42 it won't.




Sorry I am not prepared to take that bet as I said I have no idea where the sp will go in the short term. Volatility goes in both directions remember.




LifeChoices said:


> But you are right about $3026.00 being relative. In 2011 it could probably buy an old but ok commodore in 2015 it may get you a decent milkshake?




At the moment to me it is 12.7% of my portfolio, so in my eyes a substantual sum.


----------



## ROE

There is no perfect scenario, what ever you do involve some degree of risk and give and take ..

Buying stock today at XX price you get all the upside if it goes up and you wear all
down side if it goes down....you get the dividend if the stock pay dividend

Selling put with XX strike, you forgo any upside but guarantee a premium and also wear the risk stock tank below strike price..
you get no dividend but the capital  can be parked in the bank getting interest if you have other stocks to put up for margin and collateral


----------



## skc

Tysonboss1 said:


> Your not really working with enough capital to have a really good go at it, But If I wanted to purchase say 1000 BHP and I was happy to pay $35.60 but I was thinking there was a decent chance of further down side share price movements, rather than buy them today I would have sold a DEC $35.50 Put for $2.20 and pocket $2200 in the mean time while I wait and see where they are in DEC.
> 
> Worst thing that can happen is you save yourself $2200 and 3 months interest on the pruchase or you walk away with a clear $2200 profit.




He just bought *85 *BHP and you are saying he could have sold *1000 *puts?

What if BHP goes to $30 in Dec and the puts get exercised... where's he going to find $35.5k to buy those shares?


----------



## robusta

ROE said:


> There is no perfect scenario, what ever you do involve some degree of risk and give and take ..
> 
> Buying stock today at XX price you get all the upside if it goes up and you wear all
> down side if it goes down....you get the dividend if the stock pay dividend
> 
> Selling put with XX strike, you forgo any upside but guarantee a premium and also wear the risk stock tank below strike price..
> you get no dividend but the capital  can be parked in the bank getting interest if you have other stocks to put up for margin and collateral




I think I prefer the first option, I can wait out the downside and happy to collect dividends.


----------



## RandR

robusta said:


> Sorry I am not prepared to take that bet as I said I have no idea where the sp will go in the short term. Volatility goes in both directions remember.




i must confess ..

I love BHP.

But you know full well where BHP is going in the short term. Its a commodity play, its profits are fixed for it. The appetite to pay premiums for those products will quickly diminish based upon current sentiment.

But if you take a 10yr+ timeframe, no matter what happens in the next month or two. its hard to imagine BHP wont be banking bigger $$$ profits.


----------



## Tysonboss1

skc said:


> He just bought *85 *BHP and you are saying he could have sold *1000 *puts?
> 
> What if BHP goes to $30 in Dec and the puts get exercised... where's he going to find $35.5k to buy those shares?




If you read my post you will see I said he had a small capital so there wasn't much he could do, but I was giving an example of what I would do


----------



## robusta

This thread was started to track the journey of my portfolio and while the options discussion has been interesting here is my random point of view in no particular order:

* I have no interest in trading anything short term - options included

* If you can tell me where the market or a particular sp is going short term, good luck to you but I have no idea

* The portfolio is focused mainly on small to mid cap ASX companies (not many opportunities to trade options there)

* I have not researched any companies listed on other exchanges and would not be prepared to take on fx risk and higher brokerage to find liquidity

* Using leverage is enough of a risk for me, writing naked put options would make me loose sleep


----------



## robusta

Sorry I have been away most of this week and missed your post



nomore4s said:


> Hi Robusta,
> 
> While I commend you on putting forward your portfolio in a public forum there is imo a few areas you need to look at.
> 
> 1. Market conditions
> Your strategy is best suited to a bull market, the current conditions do not suit this strategy imo. Using a $30k loan to buy long term stocks with a buy & hold strategy during a flat/bear phase in the market is opening yourself to unwarranted risks, especially when starting the portfolio up, without even considering hold costs (interest payments, missed opportunity costs etc etc).
> 
> You need to have some way to gauge and evaluate market conditions and the effect those conditions have on you portfolio. Like SKC said sometimes it is more profitable to miss the first part of a move.
> 
> There will be a time when true bargains are available and this sort of strategy will bring in a very good return but imo we are nowhere near that stage.




The strategy is to concentrate in the main on high ROE growth companies and while this may underperform in a bear market who knows when a bear market ends? It is often difficult to tell until after the fact.

I do however take your point patience needs to be learnt.




nomore4s said:


> 2. Risk
> You need to understand and control risk, and again imo this aspect is very lacking in this portfolio. While I don't mind investing long-term in the right conditions without stops I would never do it in the current conditions with leverage and I would never be fully invested under current conditions with leverage and no stops.
> When starting a portfolio up like yours it is probably better to drip feed your capital into the market to help counter some serious portfolio heat should we encounter a serious drop in the market and with the current risks surrounding Europe and the US this is not out of the realms of probability.
> If the market does tank tomorrow and your portfolio halves you are left carrying a debt or a number of stocks that could take years to get back to breakeven and either way you are left paying interest on your loan till repaid or the market recovers.




Wow you were reading todays news two days ago 

I understand your point but I think the cycle is moving faster now. If you bought a *quality* growth portfolio just before Lehman Bros went down it would have hurt but would not have been terminal.

The quality of my portfolio will have to stand the test of time.



nomore4s said:


> 3. Return
> Investing is all about generating a return and one of the big problems for you with this sort of strategy is you need to return around 8%pa to end up in front, now during a raging bull market this is probably going to be no problem but during current market conditions you will be lucky not to lose 8%pa.
> It is going to be very very hard to get in front with the way the markets are atm and paying 7.5%pa in interest makes it harder, especially with a buy & hold type strategy.
> IMO you would be well worth having a good look at SKC's fundamental strategy & have some long discussions with SKC about how best to pull returns from the market using a fundamental approach as his method is one of the best I have seen.
> IMO you need to be more active to generate returns using leverage the way you are.




I respect the way SKC operates but I do not have his focus to find short term opportunities.

The companies I hold have IMO rising profits and dividends into the future and with that capital gains should take care of themselves. I look forward to the day the portfolio becomes cashflow positive.




nomore4s said:


> Good luck and I hope you continue to look at ways to improve your trading/investing.




Thankyou I will


----------



## robusta

robusta said:


> *NEW INVESTMENT*
> 
> BHP- BHP Billiton Limited
> 
> Picked up 85 shares @ $35.60
> 
> What can I say, good ROE, stuff all debt, great cash flow, solid earning history and a culture of investing with a eye on the future.
> 
> Now the portfolio is fully invested
> 
> Things have been extremely busy for me lately but I will try to update the portfolio shortly, suffice to say at the moment there is a lot more red ink than green





*INVESTMENT SOLD*

BHP, sold 85 shares @ $34.93

Have decided I would make a terrible trader and I need to learn patience. While IMO BHP at these prices is a good investment with a long term view many better opportunities may present themselves in the next year. With this in mind I am not comfortable being fully invested and want some available capital when opportunities are presented.

Also keeping a close eye on MIN as it is next closest to my estimate of IV in my portfolio.

Note to self - do not buy anything until there is a *large* margin of safety to be had.


----------



## drlog

robusta said:


> *INVESTMENT SOLD*
> 
> BHP, sold 85 shares @ $34.93
> 
> Have decided I would make a terrible trader and I need to learn patience. While IMO BHP at these prices is a good investment with a long term view many better opportunities may present themselves in the next year. With this in mind I am not comfortable being fully invested and want some available capital when opportunities are presented.
> 
> Also keeping a close eye on MIN as it is next closest to my estimate of IV in my portfolio.
> 
> Note to self - do not buy anything until there is a *large* margin of safety to be had.




As far as I can tell, you are aiming to be a value investor? Benjamin Graham said (paraphrasing) that you should keep between 25 and 75% cash. That is, don't be fully invested. I personally am over-invested as well so I plan to sell some shares in the next rally.

Having said that, BHP looks quite cheap - they are trading around 9 times earnings with high ROE and a large pool of assets. It's a great company! I watched an interview with Kloppers recently and he said (paraphrasing again) that they have never reduced their dividend (obviously in USD). I think he makes an excellent point.

IMO, MIN is a good company and currently cheap by my estimates.

As for patience - yes, when there is blood, it's a good time to buy. At the moment, there are only cuts, no blood just yet  On the flip side, there may be a huge rally, we shall see.


----------



## Tysonboss1

robusta said:


> *INVESTMENT SOLD*
> 
> BHP, sold 85 shares @ $34.93
> 
> 
> 
> Note to self - do not buy anything until there is a *large* margin of safety to be had.




You may regret that, 

What caused the sudden change,


----------



## Tysonboss1

Drlogs, 

Bens rule of 25 to 75 was for the defensive investor, but yes you should always have cash on hand,


----------



## robusta

drlog said:


> As far as I can tell, you are aiming to be a value investor? Benjamin Graham said (paraphrasing) that you should keep between 25 and 75% cash. That is, don't be fully invested. I personally am over-invested as well so I plan to sell some shares in the next rally.




Same with me I threw money way to fast into this market with little regard to future opportunities




drlog said:


> Having said that, BHP looks quite cheap - they are trading around 9 times earnings with high ROE and a large pool of assets. It's a great company! I watched an interview with Kloppers recently and he said (paraphrasing again) that they have never reduced their dividend (obviously in USD). I think he makes an excellent point.
> 
> IMO, MIN is a good company and currently cheap by my estimates.




It is difficult for me to picture a scenario where BHP and MIN have not increased profits in the next 5-10 years, BHP in particular is top quality.




drlog said:


> As for patience - yes, when there is blood, it's a good time to buy. At the moment, there are only cuts, no blood just yet  On the flip side, there may be a huge rally, we shall see.




Who knows where the market may go? We can only prepare and try to profit profit from any outcome.



Tysonboss1 said:


> You may regret that,
> 
> What caused the sudden change,




Yes I may regret selling BHP if the share price rallies but I would regret it even more if the sp falls 20% plus and I have no capital left to allocate.

The sudden change was caused by sitting in this volatile market, fully invested with no capital available for future opportunities. I will probably be fully invested again in the future but the decision will not be taken lightly.


----------



## robusta

*NEW INVESTMENT*

COH - Cochlear Limited

Bought 65 shares @ $45.85

Have had my eye on COH since the recall and it finally reached a price I am willing to pay. There may be more short term pain to come but the growth and stability of this company is exceptional. 

This is a few weeks old but formed a beginning to my research.

http://www.youtube.com/watch?v=TJmoU_dIkqg


*INVESTMENT SOLD*

MIN - Mineral Resources

It is with great regret that I sold MIN today but as stated earlier I am not comfortable being fully invested with such volatility around. The bottom line is COH was too good a opportunity to pass on an MIN was the closest to my calculation of IV in my porfolio.


----------



## robusta

*PORTFOLIO UPDATE*


U]Portfolio Cost[/U]
Lenders Mortgage insurance $667.81 paid
Bought:
7,142   x TSM   @   $0.66   = $4713.72    (25/07/11)
546      x  MCE  @   $6.95   = $3797.70    (25/07/11)
853      x CCP   @    $4.48  = $3821.44    (26/07/11)
385      x FGE   @    $5.37  = $2067.45     (26/07/11)
291      x FGE   @    $5.34  = $1553.94     (27/07/11)
29,524  x SOO  @    $0.105 = $3100.02     (01/08/11)
7407    x ZGL    @   $0.43   = $3185.01    (05/08/11)
1115    x MTU   @   $2.62   = $2921.30    (08/08/11)
386      x  MCE  @   $5.15   = $1995.62     (08/08/11)
520      x CCP   @    $3.83    = $1991.60    (08/08/11)
288      x MIN    @   $9.96   =  $2686.48    (08/08/11)
809      x MCE   @   $4.20   =  $3397.80    (24/08/11)
85        xBHP     @  $35.60 =  $3026.00     (22/09/11)
65        xCOH     @ $45.85=    $2980.25    (30/09/11)                          

Sold:
7407 x ZGL    @$0.40  = $2962.80
7142 x TSM   @$0.49 = $3499.58
29,524x SOO @ $0.10=$2952.40
85     xBHP    @$34.93=$2969.05
288 xMIN      @$10.18=$2931.84

Interest Paid    = $325.41
Brokerage Paid =  $338.80
Dividends Received = $50.70      Franking creditS = $21.73

*Total Portfolio Cost:
$27,206.98*
Tax Position, Capital Gains (Losses), Brokerage, Interest
($2,676.88) loss   Franking credits = $21.73

Current Portfolio Position

1373     x  CCP      @ $3.94  = $5409.62
65        x COH       @$45.85 =$3015.35
676      x   FGE      @ $4.36  = $2947.36
1741    x   MCE     @ $3.39  = $5901.99
1115    x MTU       @ $2.96 = $3300.40

*Current Market Value:
$20,574.72*

Total realised and unrealised loss -24.37% or - $6,632.26

Cash contributed $360.00 ($40/week)

Return on contributed equity -1,942%

Credit available $3065.37


----------



## Uni

Just read all posts and IMO you have been tempted quite easily. I did the same thing before I was inspired by value investing approach (you named them all plus Roger), also recently when COH was slipping into my radar.   

This is one of the principle of the Toyota Way but to me it's applicable in this case:
Make decisions slowly, thoroughly considering all options; implement decisions rapidly (Nemawashi). 
~ Keep calm, think thoroughly and act quickly.

To me, nothing has fundamentally changed the world so I have been building up my cash reserve only (whilst still maintaining my small porfolio pre value.able). 

Happy investing & Good luck :bier:


----------



## robusta

Uni said:


> Just read all posts and IMO you have been tempted quite easily. I did the same thing before I was inspired by value investing approach (you named them all plus Roger), also recently when COH was slipping into my radar.
> 
> This is one of the principle of the Toyota Way but to me it's applicable in this case:
> Make decisions slowly, thoroughly considering all options; implement decisions rapidly (Nemawashi).
> ~ Keep calm, think thoroughly and act quickly.
> 
> To me, nothing has fundamentally changed the world so I have been building up my cash reserve only (whilst still maintaining my small porfolio pre value.able).
> 
> Happy investing & Good luck :bier:




Good advise there UNI - thankyou.

I seem to heve no drama with the act quickly part, and I am working on the rest.


----------



## robusta

robusta said:


> *INVESTMENT SOLD*
> 
> MIN - Mineral Resources
> 
> It is with great regret that I sold MIN today but as stated earlier I am not comfortable being fully invested with such volatility around. The bottom line is COH was too good a opportunity to pass on an MIN was the closest to my calculation of IV in my porfolio.




Maybe I will not have to regret that decision. MIN down $0.59 to $9.56 at the moment. Any price under $9.00 would tempt me to buy back in.


----------



## robusta

skc said:


> IMO your first entry was mostly the fault in execution - buying into a downtrend ahead of full blown US debt ceiling crisis and brewing EU debt crisis. Your valuation assumed business as usual (which didn't eventuate but fair to say you had no way of knowing) and taking a position wasn't a terrible call.




The fault IMO was mainly in not being aware of how cyclical this business is.




skc said:


> Your second entry was clearly a fault in valuation - the results were out and didn't look good esp on a forward looking basis. Instead of cutting your losses you doubled up as you didn't adjust your valuation correctly.
> 
> Your third entry was just pure lack of discipline... discipline in terms of position sizing and respect for the market. You simply shouldn't add to the position no matter how cheap it is. The market may over-react and incorrectly price MCE after the initial result release, but this shouldn't last a whole month with it being a closely followed stock. You should have acknowledged the market's assessment and reviewed and challenged every one of your assumptions (e.g. what happens if they don't win contracts, what discount should I apply to the valuation because of such risk), instead you bought more.




Difficult to argue with any of the above except to add a little arrogance added to my predicament. I thought the market was over reacting and offering MCE at a massive discount.

My previous experience of averaging down worked a treat in my SMSF with FGE but in that case FGE were not announcing earnings downgrades.




skc said:


> His results are more than respectable without the 2nd and 3rd parcel of MCE, and probably beat the market if he simply cut MCE lose soon after the result release.




Thankyou but very early days yet... Lucky for me investing is a marathon not a sprint.

This portfolio will deliver a positive return in the future I am 100% confident of that. The question that will need to be answered is how far away is that point and will the returns justify the risk's taken?

This lesson with MCE is definately one I do not wish to repeat.


----------



## Wysiwyg

robusta said:


> Thankyou but very early days yet... Lucky for me investing is a marathon not a sprint.
> 
> This portfolio will deliver a positive return in the future I am 100% confident of that. The question that will need to be answered is how far away is that point and will the returns justify the risk's taken?
> 
> *This lesson with MCE is definately one I do not wish to repeat*.



Well it is good of you to post up your holdings because it shows most technical and fundamental long holders will be underwater in a bear cycle. No way out but sit out is the obvious conclusion to me. Patients a marathon runners best friend?


----------



## robusta

Wysiwyg said:


> Well it is good of you to post up your holdings because it shows most technical and fundamental long holders will be underwater in a bear cycle. No way out but sit out is the obvious conclusion to me. Patients a marathon runners best friend?




It does not bother me too much to underperform in this market but I am rethinking my position sizing and % of capital allocated and may well sell some holdings into the current rally.


----------



## drworm

Thanks for sharing your thoughts in this thread Robusta - I subscribed a month ago and enjoy the read.

Bad luck with MCE. These things happen, but the lessons you're learning will keep you in good stead so next time you'll be able to minimise your losses.

One technique that has kept me out of trouble over the years is adjusting my views quickly when fundamentals change and especially getting the hell out when you're surprised on the downside.

I too held MCE and sold when the prelim annual report came out and the market opened. I didn't expect their margins to shrink by as much as they did, nor such a low order book and an obviously optimistic revenue target. It was my cue to go; I had been wrong.

Further on MCE. Don't know what is up with the directors but their forecasts are highly optimistic and setting the company up for failure (revenue/profit downgrade). How is revenue growth going to grow by 0-10% when they're behind this time last year and their order book is also much smaller ($110m vs $170m).


----------



## robusta

drworm said:


> Thanks for sharing your thoughts in this thread Robusta - I subscribed a month ago and enjoy the read.
> 
> Bad luck with MCE. These things happen, but the lessons you're learning will keep you in good stead so next time you'll be able to minimise your losses.




Thankyou, I am not sure how much luck had to do with it however.




drworm said:


> One technique that has kept me out of trouble over the years is adjusting my views quickly when fundamentals change and especially getting the hell out when you're surprised on the downside.
> 
> I too held MCE and sold when the prelim annual report came out and the market opened. I didn't expect their margins to shrink by as much as they did, nor such a low order book and an obviously optimistic revenue target. It was my cue to go; I had been wrong.




Ownership bias is a strange beast, have the fundamentals changed or is this just a temporary blip? Whatever the answer I do know in the future I will be looking to weight the portfolio with companies generating stable, reoccurirng revenue streams. 




drworm said:


> Further on MCE. Don't know what is up with the directors but their forecasts are highly optimistic and setting the company up for failure (revenue/profit downgrade). How is revenue growth going to grow by 0-10% when they're behind this time last year and their order book is also much smaller ($110m vs $170m).




Since listing the forecasts have been very conservative and have consistenly surprised on the upside until the und of FY2011. Another question that may be asked is do the directors have any ability to forecast accurately?


----------



## LifeChoices

robusta said:


> Thankyou, I am not sure how much luck had to do with it however.




Lucky is a strange word. I'm always told, by others, how lucky I am when something really unlucky happens to me.

Seriously, how long do you think it will be before your investments will be back to b/e?


----------



## robusta

LifeChoices said:


> Lucky is a strange word. I'm always told, by others, how lucky I am when something really unlucky happens to me.
> 
> Seriously, how long do you think it will be before your investments will be back to b/e?




Good point regardin luck.

As to getting back to break even and into the black, I have no idea - but I will certainly enjoy the ride. 
After that the next goals will be to be cash flow positive and then to earn a satisfactory return.


----------



## LifeChoices

robusta said:


> Good point regardin luck.
> 
> As to getting back to break even and into the black, I have no idea - but I will certainly enjoy the ride.
> After that the next goals will be to be cash flow positive and then to earn a satisfactory return.





2017 maybe? That'll be a lot of posts about new fundamental positions. But I'm sure there will be lots of bargains in between.


----------



## robusta

LifeChoices said:


> 2017 maybe? That'll be a lot of posts about new fundamental positions. But I'm sure there will be lots of bargains in between.




Maybe you are right.

"The best thing about the future is that it comes one day at a time."
Abraham Lincoln 

It will be interesting to see how the markets and this portfolio go in the next six years.


----------



## robusta

Portfolio Cost
Lenders Mortgage insurance $667.81 paid
Bought:
7,142   x TSM   @   $0.66   = $4713.72    (25/07/11)
546      x  MCE  @   $6.95   = $3797.70    (25/07/11)
853      x CCP   @    $4.48  = $3821.44    (26/07/11)
385      x FGE   @    $5.37  = $2067.45     (26/07/11)
291      x FGE   @    $5.34  = $1553.94     (27/07/11)
29,524  x SOO  @    $0.105 = $3100.02     (01/08/11)
7407    x ZGL    @   $0.43   = $3185.01    (05/08/11)
1115    x MTU   @   $2.62   = $2921.30    (08/08/11)
386      x  MCE  @   $5.15   = $1995.62     (08/08/11)
520      x CCP   @    $3.83    = $1991.60    (08/08/11)
288      x MIN    @   $9.96   =  $2686.48    (08/08/11)
809      x MCE   @   $4.20   =  $3397.80    (24/08/11)
85        xBHP     @  $35.60 =  $3026.00     (22/09/11)
65        xCOH     @ $45.85=    $2980.25    (30/09/11)                          

Sold:
7407 x ZGL    @$0.40  = $2962.80
7142 x TSM   @$0.49 = $3499.58
29,524x SOO @ $0.10=$2952.40
85     xBHP    @$34.93=$2969.05
288 xMIN      @$10.18=$2931.84

Interest Paid    = $493.29
Brokerage Paid =  $338.80
Dividends Received = $453.16      Franking credit = $194.21

*Total Portfolio Cost:
$26,969.40*
Tax Position, Capital Gains (Losses), Brokerage, Interest
($2,442.30) loss   Franking credits = $194.21

Current Portfolio Position

1373     x  CCP      @ $3.99  = $5478.29
65        x COH       @$57.21  =$3718.65
676      x   FGE      @ $4.56  = $3082.56
1741    x   MCE     @ $3.23  = $5623.43
1115    x MTU       @ $2.82 = $3144.30

*Current Market Value:
$21,047.27*


Total realised and unrealised loss -21.95% or - $5,922.13

Cash contributed $520.00 ($40/week)

Realised return on contributed equity -569 %

Return on contributed equity -1,239%

Credit available $3371.82

Well about a month from the last update and not a lot to report, share prices fluctuated, got paid some dividends, paid some interest and contributed $40.00 a week.

A slight improvement in the portfolio but did not outperform the market....

No shares bought or sold this month.


----------



## robusta

*INVESTMENT SOLD*

MCE - Matrix Composites & Engineering

Sold 1741 shares @$3.50 = $6093.50

Well MCE was ~ 30% of my available capital and I have lost ~ 30% of that. Some consideration was given to maintaining a small holding but I decided to see how we stand after the 45 day limit (to take a capital loss) and then re-evaluate the situation then.
Not the best result for this portfolio but hopefully lesson learnt and onwards and upwards from here.
Maintained a small MCE holding in my SMSF after selling the lions share today, I think I may have a drink now.


----------



## So_Cynical

robusta said:


> *INVESTMENT SOLD*
> 
> MCE - Matrix Composites & Engineering
> 
> Not the best result for this portfolio but hopefully lesson learnt and onwards and upwards from here.
> Maintained a small MCE holding in my SMSF after selling the lions share today, I think I may have a drink now.




I cant help but feel that sometimes your a little to keen to take a loss...even though you did wait awhile to realise this loss, time will tell but there has to be a reasonable probability that sometime over the next 6 or 12 months a better opportunity to sell would arise.


----------



## robusta

So_Cynical said:


> I cant help but feel that sometimes your a little to keen to take a loss...even though you did wait awhile to realise this loss, time will tell but there has to be a reasonable probability that sometime over the next 6 or 12 months a better opportunity to sell would arise.




Yes it will be interesting to see.... Maybe I should switch the news off - permanently


----------



## McLovin

robusta said:


> Yes it will be interesting to see.... Maybe I should switch the news off - permanently




What has changed, in your opinion, so drastically since July wrt MCE? While I haven't loaded up on MCE anywhere near as much as you did, I think you are probably selling out at, or near, the bottom. This is a company that could be back above $6 with a couple of decent orders.


----------



## craft

robusta said:


> I decided to see how we stand after the 45 day limit (to take a capital loss) and then re-evaluate the situation then.




??? What's the 45 day limit to take a capital loss??? 

you only have to not contravene  Part IVA of the Income Tax Assessment Act. 

This tax ruling outlines the tax offices position on wash sales and there is nothing about 45 days.

http://law.ato.gov.au/atolaw/view.htm?docid=TXR/TR20081/NAT/ATO/00001


----------



## robusta

craft said:


> ??? What's the 45 day limit to take a capital loss???
> 
> you only have to not contravene  Part IVA of the Income Tax Assessment Act.
> 
> This tax ruling outlines the tax offices position on wash sales and there is nothing about 45 days.
> 
> http://law.ato.gov.au/atolaw/view.htm?docid=TXR/TR20081/NAT/ATO/00001




I stand corrected, maybe i read the 45 days in the past as advice. Still I do not want the tax man knocking on my door.

http://www.news.com.au/money/invest...loss-share-sales/story-e6frfmdr-1111115524396


----------



## McLovin

robusta said:


> I stand corrected, maybe i read the 45 days in the past as advice. Still I do not want the tax man knocking on my door.
> 
> http://www.news.com.au/money/invest...loss-share-sales/story-e6frfmdr-1111115524396




You're confusing it with the 45 day rule for franking credits.


----------



## robusta

McLovin said:


> You're confusing it with the 45 day rule for franking credits.




Thankyou McLovin you are right.


----------



## robusta

*NEW INVESTMENT*

OKN - Oakton Limited

Bought 1373 shares @ $1.455 = $1997.72

Oakton are a IT services business in the same sort of space as DWS, DTL et al.

I like OKN because they have been investing a lot into the business with a eye on the future, if the strategy works out growth should be satisfactory. In the meantime the nice dividend yield should make the wait bearable.

This is the smallest pisition I have taken to date due to one eye on current market volatility and the other eye on taking a position in DWS - at the right price.


----------



## Ves

robusta said:


> *NEW INVESTMENT*
> 
> OKN - Oakton Limited
> 
> Bought 1373 shares @ $1.455 = $1997.72
> 
> Oakton are a IT services business in the same sort of space as DWS, DTL et al.
> 
> I like OKN because they have been investing a lot into the business with a eye on the future, if the strategy works out growth should be satisfactory. In the meantime the nice dividend yield should make the wait bearable.
> 
> This is the smallest pisition I have taken to date due to one eye on current market volatility and the other eye on taking a position in DWS - at the right price.



I already hold DTL, purchased at $10.81 when the market was last down.

I haven't looked at OKN, but SMX, ASZ and DWS are also on my radar.

SMX was down almost 5% today, I held off buying when it didn't "rally" with the rest of the market last month thinking that a retest of $4.50 might be a good entry point and low and behold it is starting to drift back there.  If the latter two go down much further they will be at 10% net dividend yield with future growth predicted by the "Expert analysists." Hard to see how you could go wrong in the next 3-5 years barring absolutely disaster?


----------



## skc

robusta said:


> *NEW INVESTMENT*
> 
> OKN - Oakton Limited
> 
> Bought 1373 shares @ $1.455 = $1997.72
> 
> Oakton are a IT services business in the same sort of space as DWS, DTL et al.
> 
> I like OKN because they have been investing a lot into the business with a eye on the future, if the strategy works out growth should be satisfactory. In the meantime the nice dividend yield should make the wait bearable.
> 
> This is the smallest pisition I have taken to date due to one eye on current market volatility and the other eye on taking a position in DWS - at the right price.




AMP (I think) holds ~7.5% has been selling OKN from 9.5%. Not sure when they will stop but with poor liquidity these days that selling could drive the share price down a few notches yet.

ASZ, UXC, SMX and DWS are all similarly priced and have similar price action. A bit hard to tell them apart (without decent industry knowledge), and the problem is they are all projecting 10-15% growth. They can't all achieve that as together they represent a fair chunk of the whole IT market...

Having said that, I wouldn't hesitate buying a few OKN if the market isn't on a potential edge of the abyss... longer term will probably be right. Good luck.


----------



## robusta

Ves said:


> I already hold DTL, purchased at $10.81 when the market was last down.
> 
> I haven't looked at OKN, but SMX, ASZ and DWS are also on my radar.
> 
> SMX was down almost 5% today, I held off buying when it didn't "rally" with the rest of the market last month thinking that a retest of $4.50 might be a good entry point and low and behold it is starting to drift back there.  If the latter two go down much further they will be at 10% net dividend yield with future growth predicted by the "Expert analysists." Hard to see how you could go wrong in the next 3-5 years barring absolutely disaster?




Yes looks like these guys are priced for disaster scenarios - and we may just get them



skc said:


> AMP (I think) holds ~7.5% has been selling OKN from 9.5%. Not sure when they will stop but with poor liquidity these days that selling could drive the share price down a few notches yet.
> 
> ASZ, UXC, SMX and DWS are all similarly priced and have similar price action. A bit hard to tell them apart (without decent industry knowledge), and the problem is they are all projecting 10-15% growth. They can't all achieve that as together they represent a fair chunk of the whole IT market...
> 
> Having said that, I wouldn't hesitate buying a few OKN if the market isn't on a potential edge of the abyss... longer term will probably be right. Good luck.




Have to agree with you SKC it is difficult to pick a clear winner in this sector, it should be a interesting ride. 

Other than OKN DWS interests me the most at the moment but I have a eye on all the above except UXC due to lower ROE.


----------



## skc

robusta said:


> Have to agree with you SKC it is difficult to pick a clear winner in this sector, it should be a interesting ride.
> 
> Other than OKN DWS interests me the most at the moment but I have a eye on all the above except UXC due to lower ROE.




UXC is actually the dark horse imo. The low ROE is a result of their field service division which was sold earlier this year at a pretty decent price. This puts them at no debt and just an IT consultancy business with ~$500m revenue. On metrics like market cap / revenue UXC is the lowest amongst the peers.


----------



## robusta

skc said:


> UXC is actually the dark horse imo. The low ROE is a result of their field service division which was sold earlier this year at a pretty decent price. This puts them at no debt and just an IT consultancy business with ~$500m revenue. On metrics like market cap / revenue UXC is the lowest amongst the peers.




Thankyou, I will have to investigate further. Just shows the dangers of looking at the Comsec figures and ruling a business out.


----------



## suhm

Interesting one UXC, quite poor visibility on what the results will be like given all the one off provisions they made. Management track record from retained earnings doesnt look that great with lots of goodwill on the books but definitely does look on the cheap side. Lots of stuff is starting to look that way if they continue to grow. Big if though.


----------



## McLovin

skc said:


> ASZ, UXC, SMX and DWS are all similarly priced and have similar price action. A bit hard to tell them apart (without decent industry knowledge), and the problem is they are all projecting 10-15% growth. They can't all achieve that as together they represent a fair chunk of the whole IT market...




Actually they all tend to operate in the mid/small-tier <$100m contract size market. This segment represents about ~20% of the total market in Australia. The larger end of the market is dominated by overseas consultancies. It would be possible for them all to grow at 10-15% but would of course require that they start winning contracts in the higher segment. So far ASZ seems to be the only one articulating that as a strategy and implementing a plan to make it happen.


----------



## robusta

*INVESTMENT SOLD*

Sold 676 x FGE @ $4.53


----------



## Ves

McLovin said:


> Actually they all tend to operate in the mid/small-tier <$100m contract size market. This segment represents about ~20% of the total market in Australia. The larger end of the market is dominated by overseas consultancies. It would be possible for them all to grow at 10-15% but would of course require that they start winning contracts in the higher segment. So far ASZ seems to be the only one articulating that as a strategy and implementing a plan to make it happen.



Do any of these fit under your "recurring revenues" criteria in terms of the way you value stocks?


----------



## VSntchr

robusta said:


> *INVESTMENT SOLD*
> 
> Sold 676 x FGE @ $4.53




Might I ask why?


----------



## McLovin

Ves said:


> Do any of these fit under your "recurring revenues" criteria in terms of the way you value stocks?




ASZ and DTL both do to a certain extent, I haven't spent enough time looking at the others to really offer an opinion. I spent a bit of time looking at ASZ, and they are definately trying to move away from pure contracting to a more managed service offering which obviously has more recurring revenue. I've been trying to understand (without much luck) how virtualisation will impact DTL's software business, to me that seems like it could become a vulnerability in the future as more stuff moves to the cloud. Currently it's a pretty reliable revenue stream.

Also, running a cloud service (which they seem to be targeting as a growth area) can also be quite capital intensive (when I'm not using bandwidth someone else can use it, when I'm not accessing my files in your data centre that won't free up space on your hard drive), if you look at the CAPEX of someone like Rackspace in the US, although my understanding is that the companies here doing it are looking to offer it as a service rather than as a utility, so hopefully will be able to charge more.

As sxc said, these are difficult businesses to delineate without a detailed knowledge of the industry.


----------



## robusta

VSntchr said:


> Might I ask why?




FGE IMO is a excellent company with bright prospects that is undervalued. The decision to sell FGE was based on the macro economic factors of the European Debt Chrisis and my belief that the "miracle" Chinese economy can not continue to grow indefinately. Hopefully the funds invested in FGE can be reinvested back into FGE or a similar company at a much more attractive price sometime in the future.


----------



## skc

robusta said:


> FGE IMO is a excellent company with bright prospects that is undervalued. The decision to sell FGE was based on the macro economic factors of the European Debt Chrisis and my belief that the "miracle" Chinese economy can not continue to grow indefinately. Hopefully the funds invested in FGE can be reinvested back into FGE or a similar company at a much more attractive price sometime in the future.






robusta said:


> Thankyou but very early days yet... Lucky for me investing is a marathon not a sprint.
> 
> This portfolio will deliver a positive return in the future I am 100% confident of that.




Robusta... so you are now trading? You think FGE will fall further and want to buy back in lower... What happened to long term investing? What's your average holding period on closed positions? 2 months? 

You need better planning and discipline in both entries and exits. Write down your investment plan with actionable, measurable, quantitative steps and look at it before you buy and sell. Do that until it becomes "intrinsic" to you. Get the process right first and worry about the methodology and returns later.

With regards to FGE... NWH released a bumper profit last week, and ABS released some very good figures on mining construction and capital investments. They point to business as usual and continued growth for the mining services sector... at least for another 3-6 months. I was actually going to do a swing trade lol...


----------



## drlog

skc said:


> Robusta... so you are now trading? You think FGE will fall further and want to buy back in lower... What happened to long term investing? What's your average holding period on closed positions? 2 months?
> 
> You need better planning and discipline in both entries and exits. Write down your investment plan with actionable, measurable, quantitative steps and look at it before you buy and sell. Do that until it becomes "intrinsic" to you. Get the process right first and worry about the methodology and returns later.
> 
> With regards to FGE... NWH released a bumper profit last week, and ABS released some very good figures on mining construction and capital investments. They point to business as usual and continued growth for the mining services sector... at least for another 3-6 months. I was actually going to do a swing trade lol...




SKC, do you have an example of an investment plan with actionable, measurable, quantitative steps? Or perhaps just part of a plan? I think the investment plan would help me (as well as Robusta), I'm just wondering how to construct it?

I agree with your constructive criticism of Robusta. He says he is "value investing" but some of the recent moves seem to be trading. FGE is a great company and is currently "cheap" in what seems to be a good industry right now. Meanwhile, I expect the aussie market (along with FGE) to rally today after the recent central bank action.

Anyway, this thread has been very good so far - there are some great insights here!


----------



## robusta

skc said:


> Robusta... so you are now trading? You think FGE will fall further and want to buy back in lower... What happened to long term investing? What's your average holding period on closed positions? 2 months?
> 
> You need better planning and discipline in both entries and exits. Write down your investment plan with actionable, measurable, quantitative steps and look at it before you buy and sell. Do that until it becomes "intrinsic" to you. Get the process right first and worry about the methodology and returns later.
> 
> With regards to FGE... NWH released a bumper profit last week, and ABS released some very good figures on mining construction and capital investments. They point to business as usual and continued growth for the mining services sector... at least for another 3-6 months. I was actually going to do a swing trade lol...




Yep seems I have been trading and here is  news flash, I AM BLOODY TERRIBLE AT IT.

The intention was to re position the portfolio with more cash.


----------



## odds-on

robusta said:


> Yep seems I have been trading and here is  news flash, I AM BLOODY TERRIBLE AT IT.
> 
> The intention was to re position the portfolio with more cash.




Robusta,

trading or investing, please keep the thread going. It has certainly helped me think about some of my investment decisions.

On the www.gurufocus.com website there is a poster called Geoff Gannon who also happens to have his own website. On his website he points outs that there are four questions that need to be answered before you buy a stock. I found these four questions have helped me greatly. The four questions are below:

1.Is it safe?
2.Is it a great business?
3.Am I getting a great price?
4.Can I hold this stock for as long as it takes?

The importance you put on questions #1 to #3 really depends on your style. My importance ranking over the last couple of years has gone from 1,2,3 to 3,1,2. I am starting to obsess about 3 more and more, the stock just has to be cheap. No need for  DCF, complex spreadsheets, and so on, the stock should be dirt cheap.

Question 4 is very important and I really should have thought about it some more when I first started buying into DWS. I had a 2 year holding period in mind, I have held for well over a year now and am coming conclusion that I am not willing to hold onto the stock for much longer, other opportunities are presenting themselves. IT companies like DWS (and others listed in this thread) I thought would be trading round 12-15 P/E ratio yet they do not and my feel is they will never be priced with growth taking into account in the current market. The dividends have been well received though .

In the future for my investment decisions I will be using the following:--

3.Am I getting a great price? 
1.Is it safe?
2.Is it a great business?
4.Can I hold this stock for as long as it takes? I will start using a 1 year holding period maximum or bad results announcement.

The majority of my focus will be on 3 and 1.

I am keen to start my own thread about a strategy I want to implement and hopefully will get round to it one day as I think it would greatly help my investment decision making. The strategy will be based screening for companies with low price to sales, decent revenue growth and a reasonable net profit margin. Max 10% of capital per company with a holding period of 1 year. The due diligence limited to forum searches, back issues of AFR Smart Investor and a cursory glance at the latest annual report. The plan being to keep the investment decision down to 1 hour rather than the numerous hours that it is at the moment.

Cheers

Oddson.


----------



## skc

drlog said:


> SKC, do you have an example of an investment plan with actionable, measurable, quantitative steps? Or perhaps just part of a plan? I think the investment plan would help me (as well as Robusta), I'm just wondering how to construct it?




I don't have an example off the shelf but it's pretty simple. 

You may have an overall investment thesis that says... I will buy companies with high ROE and growing profits at a substantial margin of safety to intrinsic value. To make it measurable, quatitative and actionable, you will need to add actual details and numbers to that.

High ROE = 25%+ for the last X years.
Growing profits = 10%+ for the last Y years.
Substantial margin of safety = >40%.
Intrinsic value = using Roger Rabbits method with a RR of 15%.

Do the same for position sizing, position monitoring, exit criteria etc etc.

The test is, if someone else picks up this plan, will they make buy and sell decisions similar to yourself? If a reasonable competent person can do that, then I would deem the plan as being objective, quantified, measureable and actionable.

Whether the plan works or not, that's a completely different matter again.


----------



## robusta

skc said:


> Robusta... so you are now trading? You think FGE will fall further and want to buy back in lower... What happened to long term investing? What's your average holding period on closed positions? 2 months?




Still intending to long term invest, the execution however.....




skc said:


> You need better planning and discipline in both entries and exits. Write down your investment plan with actionable, measurable, quantitative steps and look at it before you buy and sell. Do that until it becomes "intrinsic" to you. Get the process right first and worry about the methodology and returns later.




Still happy with my plan but have found myself reacting to market volatility - albeit slowly




skc said:


> With regards to FGE... NWH released a bumper profit last week, and ABS released some very good figures on mining construction and capital investments. They point to business as usual and continued growth for the mining services sector... at least for another 3-6 months. I was actually going to do a swing trade lol...




As I said FGE is a excellent company with bright prospects and at the time I was happy with my entry @ $5.35 



odds-on said:


> Robusta,
> 
> trading or investing, please keep the thread going. It has certainly helped me think about some of my investment decisions.
> 
> On the www.gurufocus.com website there is a poster called Geoff Gannon who also happens to have his own website. On his website he points outs that there are four questions that need to be answered before you buy a stock. I found these four questions have helped me greatly. The four questions are below:
> 
> 1.Is it safe?
> 2.Is it a great business?
> 3.Am I getting a great price?
> 4.Can I hold this stock for as long as it takes? .




Great questions, when I bought FGE I would have answered yes to all four. The change of heart is due to question 3. I underestimated how far this stock could fall in such a short time. My normal answer would be to buy more of a good thing at a even better price but in this envirement I would like to keep my options open (and capital available) with the chance of the market retesting the lows of 2008/2009



odds-on said:


> The importance you put on questions #1 to #3 really depends on your style. My importance ranking over the last couple of years has gone from 1,2,3 to 3,1,2. I am starting to obsess about 3 more and more, the stock just has to be cheap. No need for  DCF, complex spreadsheets, and so on, the stock should be dirt cheap.
> 
> Question 4 is very important and I really should have thought about it some more when I first started buying into DWS. I had a 2 year holding period in mind, I have held for well over a year now and am coming conclusion that I am not willing to hold onto the stock for much longer, other opportunities are presenting themselves. IT companies like DWS (and others listed in this thread) I thought would be trading round 12-15 P/E ratio yet they do not and my feel is they will never be priced with growth taking into account in the current market. The dividends have been well received though .
> 
> In the future for my investment decisions I will be using the following:--
> 
> 3.Am I getting a great price?
> 1.Is it safe?
> 2.Is it a great business?
> 4.Can I hold this stock for as long as it takes? I will start using a 1 year holding period maximum or bad results announcement.
> 
> The majority of my focus will be on 3 and 1..




This is interesting, I have not been very successful so far but I would like to put #2. Is it a great business on top this would include #1. is it safe? then if I can answer #3, #4 should follow.



odds-on said:


> I am keen to start my own thread about a strategy I want to implement and hopefully will get round to it one day as I think it would greatly help my investment decision making. The strategy will be based screening for companies with low price to sales, decent revenue growth and a reasonable net profit margin. Max 10% of capital per company with a holding period of 1 year. The due diligence limited to forum searches, back issues of AFR Smart Investor and a cursory glance at the latest annual report. The plan being to keep the investment decision down to 1 hour rather than the numerous hours that it is at the moment.
> 
> Cheers
> 
> Oddson.




That would be a very interesting strategy, however for me I would like to take more time on the investment decision not less.


----------



## Ves

In answering question two "is it a great business?" do you consider sustainable competitive advantages (ie. barriers to entry)? If so, how do you assess Forge in this area? 

In my opinion it doesn't have any, it's a cyclical business at the peak of its cycle hence the growing share price up until recently. The mining / engineering services industry had an excess demand for work and contracts consequently had large margins because of this. But as with any industry when demand shrinks, and other entrants come in to try and gain market share, margins start to close. There are no shortage of firms fighting for the same contracts. How is Forge more likely to gain business and maintain it's margins in this environment? Does it have a competitive advantage in this respect? Again, I would say no. I'd be curious to see if you think differently.


----------



## robusta

Ves said:


> In answering question two "is it a great business?" do you consider sustainable competitive advantages (ie. barriers to entry)? If so, how do you assess Forge in this area?
> 
> In my opinion it doesn't have any, it's a cyclical business at the peak of its cycle hence the growing share price up until recently. The mining / engineering services industry had an excess demand for work and contracts consequently had large margins because of this. But as with any industry when demand shrinks, and other entrants come in to try and gain market share, margins start to close. There are no shortage of firms fighting for the same contracts. How is Forge more likely to gain business and maintain it's margins in this environment? Does it have a competitive advantage in this respect? Again, I would say no. I'd be curious to see if you think differently.




FGE is IMO up there with MND, while they are both cyclical but they are "so good at what they do" they should outperform through the cycle.

Having said that COH for example has a much more sustainable competitive advantage.


----------



## McLovin

Ves said:


> In answering question two "is it a great business?" do you consider sustainable competitive advantages (ie. barriers to entry)? If so, how do you assess Forge in this area?
> 
> In my opinion it doesn't have any, it's a cyclical business at the peak of its cycle hence the growing share price up until recently. The mining / engineering services industry had an excess demand for work and contracts consequently had large margins because of this. But as with any industry when demand shrinks, and other entrants come in to try and gain market share, margins start to close. There are no shortage of firms fighting for the same contracts. How is Forge more likely to gain business and maintain it's margins in this environment? Does it have a competitive advantage in this respect? Again, I would say no. I'd be curious to see if you think differently.




Great post. Mining services companies are a great example of when Monty's formula will toss up lots of dogs because they have a temporary high RoE.


----------



## craft

Ves said:


> In answering question two "is it a great business?" do you consider sustainable competitive advantages (ie. barriers to entry)? If so, how do you assess Forge in this area?
> 
> In my opinion it doesn't have any, it's a cyclical business at the peak of its cycle hence the growing share price up until recently. The mining / engineering services industry had an excess demand for work and contracts consequently had large margins because of this. But as with any industry when demand shrinks, and other entrants come in to try and gain market share, margins start to close. There are no shortage of firms fighting for the same contracts. How is Forge more likely to gain business and maintain it's margins in this environment? Does it have a competitive advantage in this respect? Again, I would say no. I'd be curious to see if you think differently.






McLovin said:


> Great post.




+1. 

The large industrial construction cycle might still have some legs though, there's plenty in the pipe line if it materialises. But cyclical it is.


----------



## craft

odds-on said:


> In the future for my investment decisions I will be using the following:--
> 
> 3.Am I getting a great price?
> 1.Is it safe?
> 2.Is it a great business?
> 4.Can I hold this stock for as long as it takes? I will start using a 1 year holding period maximum or bad results announcement.
> 
> The majority of my focus will be on 3 and 1.
> .




Interesting how we all come at things different ways. My ordering of the questions would be the complete reverse of yours. A useful way to think about things when putting in place the strategies that suit us.


----------



## So_Cynical

I've thought about it and i cant separate them other than on price...price/entry is so important, something that Robusta hasn't paid enough attention to IMO.

1.Am I getting a great price? 
2.Is it safe?
2.Is it a great business?

The majority of my focus will be on 1 and 2...Its a given i can hold as long as it takes.


----------



## Ves

Honestly I think question two and three are the only ones worth answering. I don't think that you need to answer question three at all if the company isn't what you consider a "great business." The most important question of all is "is this a great business?" A "safe bet" or in other words a two-inch putt is a necessary conclusion of this, so it's much in the same line of questioning and does not need to be answered on its own merits. Although some investors / traders may say that this is more in "reading the sentiment of the market" but I think that this is irrevelant given the timeframe required. You don't need to buy anything if nothing is being offered that fits your criteria.

The valuation and / or future assumptions are a secondary tool for deciding a possible entry point after you are satisfied that a business has sustainable competitive advantages. If it does not it will achieve long-term growth that is never in excess of the cost of capital. Buying a great business at a great price (or even fair value) mitigates the need to ask "Can I hold for as long as it takes?" provided that you are not buying for speculative growth to vindicate the success of the investment decision.


----------



## Ves

craft said:


> +1.
> 
> The large industrial construction cycle might still have some legs though, there's plenty in the pipe line if it materialises. But cyclical it is.



 Also, it may be my lack of knowledge, but I don't see how these businesses are scalable. They do not seem to have a high-degree of fixed costs, therefore economies of scale seem to be out of the question? It's not the be-end all of everything, but it can be very important source of competitive advantages.


----------



## So_Cynical

Ves said:


> Honestly I think question two and three are the only ones worth answering. I don't think that you need to answer question three at all if the company isn't what you consider a "great business." The most important question of all is "is this a great business?" A "safe bet" or in other words a two-inch putt is a necessary conclusion of this, so it's much in the same line of questioning and does not need to be answered on its own merits. Although some investors / traders may say that this is more in "reading the sentiment of the market" but I think that this is irrevelant given the timeframe required. You don't need to buy anything if nothing is being offered that fits your criteria.
> 
> The valuation and / or future assumptions are a secondary tool for deciding a possible entry point after you are satisfied that a business has sustainable competitive advantages. If it does not it will achieve long-term growth that is never in excess of the cost of capital. Buying a great business at a great price (or even fair value) mitigates the need to ask "Can I hold for as long as it takes?" provided that you are not buying for speculative growth to vindicate the success of the investment decision.




A "safe bet" for me has multiple considerations with the most important consideration being, is now an appropriate time to buy? am i buying at the bottom of the price cycle thus giving the greatest potential for profit?...if i don't believe im buying a bottom then im not buying.

Robusta paid $5.35 for FGE which has proven to be to much...he's out of the trade because he paid to much, not because its a bad business or wasn't a safe business...time is important, the time you can commit to the trade and the timing of the trade at both ends.


----------



## craft

What about question 4? “Can I hold this stock for as long as it takes”

I think this is the  question that distinguishes an investor  from a trader.  If you are an investor you are looking at the returns the underlying investment can deliver and be damned with the market. If the market offers to pay a generous price you might choose to commute the future cash flows but if it doesn’t you are prepared to sit and reap the return generated by the asset itself.

It is way way to early to know if FGE was a good investment at $5.35 based on all its future cash flows. So you can’t point the finger at price being Robusta’s mistake. You can say he incurred an opportunity cost by buying at $5.35 (hell everything in the market is an opportunity cost, else we would all make a million bucks a day) but had he held for the life of the company he may have made a decent return on his investment – we don’t know it’s too early.  Robusta doesn’t seem to be saying he has lost faith in the company but he has now converted his opportunity cost into a real cost because he wasn’t prepared to hold for as long as it takes. This is the biggest trap I see people calling themselves investors getting into.  They can’t hold in the face of the market and end up wilting under the pressure and selling at inappropriate times.

I honestly think if you can’t say you are prepared (and have the financial position) to back your judgment on what the underlying asset will return and be prepared to hold it for its natural life if that’s what it takes to get that return then you should not be investing but trading and implementing the full armory of risk measures based on *PRICE*.  When the pressure comes on everything you think you believe about fundamentals and valuation will count for naught if you have mis-answered question 4. 

So Robusta what's your answer to 4? there's no wrong or right answer but it has a huge impact on how you should approach the market and what risk control strategies you should put in place.


----------



## Ves

craft said:


> What about question 4? “Can I hold this stock for as long as it takes”



I simply do not see the need for this question in my approach. A better question is "For what purpose am I holding the stocks in my portfolio"? Psychologically if you have conceded that you will only hold great companies at a great (or fair) price then you should see no need to sell them unless you are going against your initial conditions or your analysis was wrong about them being a "great company." The market is a weighing machine in the long run, the cream always rises to the top. Consistently improving metrics over a number of years (be it cash flow, profit, income stream etc) cannot be ignored forever.


----------



## So_Cynical

While we are scrutinizing Robusta's FGE trade its probably appropriate to bang up a chart of his entry and subsequent price movements etc.... personally i can see my self buying based on the price action, however i would of been looking for the bottom of the channel at the time (around 5.15) and would of taken at least 1 average down as the SP fell away...either digging myself a deeper hole or helping me out of the hole i was in. 50/50

However based on the quality of the business i wouldn't of brought it anyway...i only own 1 service company.
~


----------



## odds-on

What are the top 5 great businesses on the ASX? By great, take it to mean the business is so great that you are willing invest all your net worth in those 5 for the next 5 years. I cannot name 1 business on the ASX that i consider that great.

In my opinion there are approximately 20 to 30 OK businesses that are worth investing in if the price is right. 

Cheers

Oddson


----------



## craft

Ves said:


> I simply do not see the need for this question in my approach. A better question is "For what purpose am I holding the stocks in my portfolio"? Psychologically if you have conceded that you will only hold great companies at a great (or fair) price then you should see no need to sell them unless you are going against your initial conditions or your analysis was wrong about them being a "great company." The market is a weighing machine in the long run, the cream always rises to the top. Consistently improving metrics over a number of years (be it cash flow, profit, income stream etc) cannot be ignored forever.




V

Here is a scenario for you to contemplate using FGE as an example.

Say it met all your criteria and you brought it on 1/7/08 at 70 cents. 5 Months later on the 1/12/08 the market is valuing it at 15 cent. That’s near an 80% drawdown on your purchase price. These are the time you realise the significance of question 4. Today FGE is priced by the market at $4.50, that’s something like an 80% CAGR on your 70 cent buy price – so long as you made it through the 80% drawdown without locking in an actual loss.

You recently purchased DTL, the market could easily take its price 50% below your purchase price in spite of nothing materially changing to the long term outlook of the business, this sort of drop occurred in 2008.  Now is the time to be considering question 4 – not when the market is showing you the relevance of the question and trust me, one day it will.

“Can I hold this stock for as long as it takes” –  It’s the implications of this question that need to be considered. Am I Psychologically prepeared to hold no matter what the market is saying.  Do I have the financial position to hold no matter what. (Loss of employment, loans recalled, source of alternative available cash flow etc etc)

If you can’t stick to the investment discipline in the darkest of days and they will come, then you are better off recognising that now and putting in place a strategy that you can live with under worst case scenario’s, for most that will mean limiting drawdown’s through controlling market price risk.

Sorry Robusta to clog up your thread but I hope addressing the questions Oddson proposed has some relevance for you.


----------



## Ves

I understand the importance of the question, especially if you make one off purchases and do not add to your position (at least not regularly). However, if you are drip-feeding capital into the market, and are still confident with your analysis, would you not see this as an additional opportunity to add to your position? I suppose that that too is a testament to the original question, "if I am to add to my position would I hold for as long as it takes...?" This shows the importance of always making sure that you have cash flow in your portfolio and room to move on future opportunities. It's a good question, but every value investor should have already explicity answered when adopting his or her strategy. I guess that's all that I am trying to say. After that cognitive dissonance is the only enemy.

Edit: I am currently holding a stock, purchase price of $0.825 that touched $0.38 in August. Pretty scary times, but you have to grit your teeth and remember why you purchased it. It is currently sitting in the mid 60s again.


----------



## So_Cynical

odds-on said:


> What are the top 5 great businesses on the ASX? By great, take it to mean the business is so great that you are willing invest all your net worth in those 5 for the next 5 years. I cannot name 1 business on the ASX that i consider that great.
> 
> In my opinion there are approximately 20 to 30 OK businesses that are worth investing in if the price is right.
> 
> Cheers
> 
> Oddson




I could easy find 20 or 30 that i would put everything into...in fact i have found 24 stocks that i have 95% of my net worth in....22 of them great business the other 2 have issues.

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



craft said:


> “Can I hold this stock for as long as it takes” –  It’s the implications of this question that need to be considered. Am I Psychologically prepeared to hold no matter what the market is saying.  Do I have the financial position to hold no matter what. (Loss of employment, loans recalled, source of alternative available cash flow etc etc)
> 
> If you can’t stick to the investment discipline in the darkest of days and they will come, then you are better off recognising that now and putting in place a strategy that you can live with under worst case scenario’s, for most that will mean limiting drawdown’s through controlling market price risk.




Exactly.

Many don't understand that the above is actually an "edge" its a huge advantage to be blessed with that personality or learn that discipline, a massive advantage to have over others (the uncomfortable/sellers), holding and buying thru the dark days combined with good stock selection, a little vision and no leverage worries...is an awesome combination of "market edges".


----------



## robusta

So_Cynical said:


> A "safe bet" for me has multiple considerations with the most important consideration being, is now an appropriate time to buy? am i buying at the bottom of the price cycle thus giving the greatest potential for profit?...if i don't believe im buying a bottom then im not buying.
> 
> Robusta paid $5.35 for FGE which has proven to be to much...he's out of the trade because he paid to much, not because its a bad business or wasn't a safe business...time is important, the time you can commit to the trade and the timing of the trade at both ends.




Still not sure with the information available at the time I made the incorrect decision, the fault IMO is with portfolio management or in my case mismanagement.

I probably did not articulate it at the time but my original strategy was to keep ~ 30% of capital available to take advantage of future opportunities. 

My impatience has cost me, as the market was falling I was picking up decent companies at decent prices with no consideration buying these same companies in the future at even larger discounts.



craft said:


> What about question 4? “Can I hold this stock for as long as it takes”
> 
> I think this is the  question that distinguishes an investor  from a trader.  If you are an investor you are looking at the returns the underlying investment can deliver and be damned with the market. If the market offers to pay a generous price you might choose to commute the future cash flows but if it doesn’t you are prepared to sit and reap the return generated by the asset itself.
> 
> It is way way to early to know if FGE was a good investment at $5.35 based on all its future cash flows. So you can’t point the finger at price being Robusta’s mistake. You can say he incurred an opportunity cost by buying at $5.35 (hell everything in the market is an opportunity cost, else we would all make a million bucks a day) but had he held for the life of the company he may have made a decent return on his investment – we don’t know it’s too early.  Robusta doesn’t seem to be saying he has lost faith in the company but he has now converted his opportunity cost into a real cost because he wasn’t prepared to hold for as long as it takes. This is the biggest trap I see people calling themselves investors getting into.  They can’t hold in the face of the market and end up wilting under the pressure and selling at inappropriate times.




Excellent points Craft, while I have been buying high and selling low  , the only silver lining I can find is the realised tax losses and the potentual to redeploy the capital into FGE or another business at a more attractive price. 




craft said:


> I honestly think if you can’t say you are prepared (and have the financial position) to back your judgment on what the underlying asset will return and be prepared to hold it for its natural life if that’s what it takes to get that return then you should not be investing but trading and implementing the full armory of risk measures based on *PRICE*.  When the pressure comes on everything you think you believe about fundamentals and valuation will count for naught if you have mis-answered question 4.
> 
> So Robusta what's your answer to 4? there's no wrong or right answer but it has a huge impact on how you should approach the market and what risk control strategies you should put in place.




I would have to say yes to question 4 despite all the evidence to the contrary, but I definately need to sort out my portfolio management and make a whole lot less and better decisions in the future.





craft said:


> V
> 
> Here is a scenario for you to contemplate using FGE as an example.
> 
> Say it met all your criteria and you brought it on 1/7/08 at 70 cents. 5 Months later on the 1/12/08 the market is valuing it at 15 cent. That’s near an 80% drawdown on your purchase price. These are the time you realise the significance of question 4. Today FGE is priced by the market at $4.50, that’s something like an 80% CAGR on your 70 cent buy price – so long as you made it through the 80% drawdown without locking in an actual loss.
> 
> You recently purchased DTL, the market could easily take its price 50% below your purchase price in spite of nothing materially changing to the long term outlook of the business, this sort of drop occurred in 2008.  Now is the time to be considering question 4 – not when the market is showing you the relevance of the question and trust me, one day it will.
> 
> “Can I hold this stock for as long as it takes” –  It’s the implications of this question that need to be considered. Am I Psychologically prepeared to hold no matter what the market is saying.  Do I have the financial position to hold no matter what. (Loss of employment, loans recalled, source of alternative available cash flow etc etc)
> 
> If you can’t stick to the investment discipline in the darkest of days and they will come, then you are better off recognising that now and putting in place a strategy that you can live with under worst case scenario’s, for most that will mean limiting drawdown’s through controlling market price risk.
> 
> Sorry Robusta to clog up your thread but I hope addressing the questions Oddson proposed has some relevance for you.




Clog up the thread?? Keep it up please!!  

Thankyou everyone


----------



## Huskar

One suggestion regarding capital management might be to determine prior to purchasing what your total capital position hopes to be in the relevant stock, eg $5k (or some percentage of total capital). Then rather than pulling the trigger all at once, to be disciplined and only purchase 25% of that position, eg $1250. 

If the price subsequently goes up then you can congratulate yourself on getting a position. If the stock goes down  a nominated amount however, say a further 10%, then you take your second position with 50%, eg $2500. Finally if the stock falls even further, say another 15%, then you make your final purchase of 25% of intended position. 

This is in some ways similar to So_Cyn's averaging down strategy but I would argue is more objective with regard to position sizing (unless I have misunderstood his strategy).

Clearly this requires a solid confidence in your ability to select good businesses - and goes directly to q 4. It requires emotional discipline to continue to execute the strategy while the share price is falling as well as being able to change your mind if the reasons for your original purchase are no longer present.


----------



## robusta

odds-on said:


> I found these four questions have helped me greatly. The four questions are below:
> 
> 1.Is it safe?
> 2.Is it a great business?
> 3.Am I getting a great price?
> 4.Can I hold this stock for as long as it takes?




http://www.youtube.com/watch?v=vkEUd_aju8c

I think those four questions will help me in the future as well.


----------



## skc

The only question you need to ask is... Will this investment make me money for the risk I take?

While all 4 questions are thoughts provoking, in their current form they are not objective, quantitative, measurable or actionable. When does a company go from being "safe" to being "not safe"? Were the big 4 banks safe in Sept 2008? Without hard numbers to guide your decision making, you will reason your answer based on your emotions.



robusta said:


> I probably did not articulate it at the time but my original strategy was to keep ~ 30% of capital available to take advantage of future opportunities.




This in not actionable... when you have 30% cash you are not allowed to invest anymore so how can you take advantage of future opportunities? What future opportunities can you take with that final 30%? Only really good opportunities? How would you determine that?



craft said:


> If you can’t stick to the investment discipline in the darkest of days and they will come, then you are better off recognising that now and putting in place a strategy that you can live with under worst case scenario’s, for most that will mean limiting drawdown’s through controlling market price risk.




The problem will always be that people bury their head in the sand in the face of deteriorating company financials and industry conditions. Price based stop loss may be illogical be it could be a small price to pay to prevent the stuborn mistakes made by plenty of value investors (particularly those who like to average down forever).


----------



## Ves

If someone has done a thorough research and analysis before buying a share in a company wouldn't you be able to argue that they are not reviewing the fundamentals of the company on a regular basis if they cannot see that the company performance is detiorating? Burying your head in the sand is an emotional reaction, not a systematic or technical fault of the investment philosophy. Exactly the same as a trader who buys into a position that does not agree with his system parameters.

I completely agree with you though, skc, you must define what significant events should they occur are to be perceived as a "deterioration in fundamentals" or otherwise should lead to a selling decision. This needs to happen before you buy into a position. You also have to, as you said, define an action plan for your latent cash reserves, and when they can and should be used.


----------



## Intrinsic Value

The problem with a company like FGE and I do hold quite a lot of FGE shares but i bought then at an average of about 3.50 is that it is largely dependent on contracts and the management of such contracts. That being the case things can turn nasty very quickly where contracts are lost or mismanaged.

At the moment the fundamentals are stiill good for FGE and I will continue to hold and I certainly think that even at 5.35 i would hold unless I needed the capital for what i  thought was a better opportunity.

Another small cap in the engineering services area in WA RCR recently just won a big contract over 600 million and their share price has spiked accordingly. However their turnover last year was around 500 million so if this contract goes a bit sour their share price could tank drammatically.


----------



## odds-on

Intrinsic Value said:


> The problem with a company like FGE and I do hold quite a lot of FGE shares but i bought then at an average of about 3.50 is that it is largely dependent on contracts and the management of such contracts. That being the case things can turn nasty very quickly where contracts are lost or mismanaged.
> 
> At the moment the fundamentals are stiill good for FGE and I will continue to hold and I certainly think that even at 5.35 i would hold unless I needed the capital for what i  thought was a better opportunity.
> 
> Another small cap in the engineering services area in WA RCR recently just won a big contract over 600 million and their share price has spiked accordingly. However their turnover last year was around 500 million so if this contract goes a bit sour their share price could tank drammatically.




FGE is on my watchlist, still needs to fall further before i will buy. IMO any valuation of forge should be based on revenue growth, profit margin sustainability and a survival factor. Playing around with those three variables should produce a reasonable valuation. At the current price it is still to close a call for me, so i am willing to wait till it drops below a price to sales ratio of 0.7.

Cheers

Oddson


----------



## robusta

Huskar said:


> One suggestion regarding capital management might be to determine prior to purchasing what your total capital position hopes to be in the relevant stock, eg $5k (or some percentage of total capital). Then rather than pulling the trigger all at once, to be disciplined and only purchase 25% of that position, eg $1250.
> 
> If the price subsequently goes up then you can congratulate yourself on getting a position. If the stock goes down  a nominated amount however, say a further 10%, then you take your second position with 50%, eg $2500. Finally if the stock falls even further, say another 15%, then you make your final purchase of 25% of intended position.
> 
> This is in some ways similar to So_Cyn's averaging down strategy but I would argue is more objective with regard to position sizing (unless I have misunderstood his strategy).
> 
> Clearly this requires a solid confidence in your ability to select good businesses - and goes directly to q 4. It requires emotional discipline to continue to execute the strategy while the share price is falling as well as being able to change your mind if the reasons for your original purchase are no longer present.




This strategy has does sound logical. My original idea was to position size relative to my estimate of intrinsic value, the minimum investment would be $3000 (or 10%) if I thought the stock was at a 20% discount to IV with a extra $1000 for a further 10% discount and so on. 

As you can see this strategy had me throwing capital into the market very quickly and also had no regard for the final position size. MCE being the hard lesson learnt.


----------



## robusta

skc said:


> The only question you need to ask is... Will this investment make me money for the risk I take?




Good point, if you answer yes to all 4 questions the answer will by default be yes.




skc said:


> While all 4 questions are thoughts provoking, in their current form they are not objective, quantitative, measurable or actionable. When does a company go from being "safe" to being "not safe"? Were the big 4 banks safe in Sept 2008? Without hard numbers to guide your decision making, you will reason your answer based on your emotions.




I would argue that it is quantitative, measurable or actionable by looking at deby/equity, capital management, earnings history, reoccorring revenue, competitive advantages, growth in book value... Some if these indicators may be grey but you can definately make rational decisions based on them.





skc said:


> This in not actionable... when you have 30% cash you are not allowed to invest anymore so how can you take advantage of future opportunities? What future opportunities can you take with that final 30%? Only really good opportunities? How would you determine that?




30% cash is not a hard and fast rule, my view is the market and more importantly the stocks I am interested may be offered at more attractive prices in the near future (within the next couple of years) and I want to have capital available to take advantage of that.

"It's the vibe of the thing" - Dennis Denuto

Prices may drop 10% and I may decide all the bad news is priced in or they may drop 30% or rally 30% who knows?





skc said:


> The problem will always be that people bury their head in the sand in the face of deteriorating company financials and industry conditions. Price based stop loss may be illogical be it could be a small price to pay to prevent the stuborn mistakes made by plenty of value investors (particularly those who like to average down forever).




True, also some people buy at the peak of bull markets and sell in the depths of bear markets, I have trouble working out where markets are going so would prefer (despite past performance) to buy when prices are attractive and hold good businesses through the economic cycle.


----------



## robusta

*NEW INVESTMENT - SORT OF*

"There's an old saying in Tennessee ”” I know it's in Texas, probably in Tennessee ”” that says, fool me once, shame on ”” shame on you. Fool me ”” you can't get fooled again." - George W Bush

Bought 837 x MCE @ $3.08 = $2577.96

Probably jumped in too early again however position size is about right this time IMO.

New contract signed

http://www.asx.com.au/asxpdf/20111220/pdf/423dqlbpzznz2b.pdf


----------



## suhm

I expected more of a lift from that announcement, seemed like a reasonably large contract. Not sure if they gave up some margin for it and will need to wait for results to come out but does seem that MCE may have turned the corner if it continues to win new contracts.

Its already a big fish in their niche so may need to look at expanding their offering for further growth.


----------



## robusta

suhm said:


> I expected more of a lift from that announcement, seemed like a reasonably large contract. Not sure if they gave up some margin for it and will need to wait for results to come out but does seem that MCE may have turned the corner if it continues to win new contracts.
> 
> Its already a big fish in their niche so may need to look at expanding their offering for further growth.




They are looking to expand into the shale gas sector.


----------



## skc

robusta said:


> *NEW INVESTMENT - SORT OF*
> 
> "There's an old saying in Tennessee — I know it's in Texas, probably in Tennessee — that says, fool me once, shame on — shame on you. Fool me — you can't get fooled again." - George W Bush
> 
> Bought 837 x MCE @ $3.08 = $2577.96
> 
> Probably jumped in too early again however position size is about right this time IMO.
> 
> New contract signed
> 
> http://www.asx.com.au/asxpdf/20111220/pdf/423dqlbpzznz2b.pdf




Lol... very apt quote. How many times did you call your ex-girlfriend after you broke up last time? 

On a more serious note... they added ~$3.5m revenue per month, which brings them to $11m per month - still 1/3 below last year's pace. 

https://www.aussiestockforums.com/forums/showthread.php?t=19952&p=671275&highlight=mce#post671275

Still a hold (i.e. not a buy) to me.


----------



## LifeChoices

robusta said:


> *NEW INVESTMENT - SORT OF*




Fundamental Leveraged Investment or punt?

The way you buy and sell looks (to me) like you are taking another punt - nothing wrong with that. Just prefer you tell it how it is.

However, you write about these punts like you actually believe you are investing in the future - that's the thing that amuses/interests me about this thread.

The fact is six months on, your portfolio is looking pretty shabby. Looking back on your progress, do you think it was just your timing that was poor judgement?


----------



## Intrinsic Value

LifeChoices said:


> Fundamental Leveraged Investment or punt?
> 
> The way you buy and sell looks (to me) like you are taking another punt - nothing wrong with that. Just prefer you tell it how it is.
> 
> However, you write about these punts like you actually believe you are investing in the future - that's the thing that amuses/interests me about this thread.
> 
> The fact is six months on, your portfolio is looking pretty shabby. Looking back on your progress, do you think it was just your timing that was poor judgement?




To be fair thou how many value investors are ahead over the last six months?

Not many I would guess.

If you are a true believer then six months is not enough time to judge success or failure.

I am ahead on only one stock, SLR over the last six months. Two others are stable and the rest are well down.


----------



## robusta

LifeChoices said:


> Fundamental Leveraged Investment or punt?
> 
> The way you buy and sell looks (to me) like you are taking another punt - nothing wrong with that. Just prefer you tell it how it is.




We are all taking a punt mate, everytime we walk out the front door




LifeChoices said:


> However, you write about these punts like you actually believe you are investing in the future - that's the thing that amuses/interests me about this thread.




Hope you stay amused, I do actually believe I am investing for the future 



LifeChoices said:


> The fact is six months on, your portfolio is looking pretty shabby.




The returns may be shabby but I am very happy with the stocks I hold.




LifeChoices said:


> Looking back on your progress, do you think it was just your timing that was poor judgement?




Not just timing, position sizing was also to blame and a lack of patience.

Way too much churn so far, every stock I have traded has been a mistake, the ones I hold time will tell.....



Intrinsic Value said:


> To be fair thou how many value investors are ahead over the last six months?
> 
> Not many I would guess.
> 
> If you are a true believer then six months is not enough time to judge success or failure.
> 
> I am ahead on only one stock, SLR over the last six months. Two others are stable and the rest are well down.




Cheers you could say there has been a fair bit of volatility, wish I was smart enough to pick up some SLR or NST however , I took a good look at both but decided to pass.


----------



## robusta

skc said:


> Lol... very apt quote. How many times did you call your ex-girlfriend after you broke up last time?




Yes well - breaking up is hard to do.

The main question for me with MCE was, am I buying just to recoup my losses?

My opinion has not changed, this is a growth company in a growth sector with lumpy returns that has been hammered by the market for hitting a soft patch.




skc said:


> On a more serious note... they added ~$3.5m revenue per month, which brings them to $11m per month - still 1/3 below last year's pace.
> 
> https://www.aussiestockforums.com/forums/showthread.php?t=19952&p=671275&highlight=mce#post671275
> 
> Still a hold (i.e. not a buy) to me.




Well I guess I have voted my opinion with my money, I still find it hard to believe over the medium to long term all the growth has gone from MCE.

Still a little nervous about the upcoming 1/2 results, the cash flow will be very interesting.


----------



## robusta

Orbis have today emerged as substantial investors in MCE

http://www.asx.com.au/asxpdf/20111222/pdf/423gmmmw96fm66.pdf

Orbis describe themselves as a longterm, fundamental, contrarian fund.

All words I would like to be able to spell when I grow up.


----------



## suhm

Wrong time of the year to be kicking a person, constructive feedback is good and robusta's record hasn't been very good, neither has mine this year, we all make mistakes, its whether we learn from them and survive them which is important so when you do get it correct you knock the cover off the ball. 
I haven't agreed with robusta's choices but the guy is trying and it is part of the learning process.
You know the saying about the speck and plank, maybe you should post your prospective record and see how that compares.


----------



## LifeChoices

suhm said:


> Wrong time of the year to be kicking a person, constructive feedback is good and robusta's record hasn't been very good, neither has mine this year, we all make mistakes, its whether we learn from them and survive them which is important so when you do get it correct you knock the cover off the ball.
> I haven't agreed with robusta's choices but the guy is trying and it is part of the learning process.
> You know the saying about the speck and plank, maybe you should post your prospective record and see how that compares.




Hey, with all due respect. I believe I have been as honest as I could be - check out my any of my posts and threads I've started. I wouldn't be bothered posting this comment had I not been honest in my thoughts.

I don't want to kick the guy, nor anyone else here - I'm a pacifist. This has been a most entertaining read. Let's not forget that this is a public forum, and if anyone makes certain assumptions. I think I have a right, like anyone else, to say what I think. It is fair game for me or anyone else to question how quickly Robusta has lost his initial investment. We can all see the title of this thread, all I'm doing is questioning it. I expect and receive the same treatment.

What is wrong with that?


----------



## robusta

suhm said:


> Wrong time of the year to be kicking a person, constructive feedback is good and robusta's record hasn't been very good, neither has mine this year, we all make mistakes, its whether we learn from them and survive them which is important so when you do get it correct you knock the cover off the ball.
> I haven't agreed with robusta's choices but the guy is trying and it is part of the learning process.
> You know the saying about the speck and plank, maybe you should post your prospective record and see how that compares.




Thankyou for the kind thoughts suhm as you say all part of the learning process. I would be the first to admit my record has not been good but I am happy with all feedback constructive or not. 
Looking at the short term losses in this portfolio it is easy for some to forget that in a couple of years any one of the five businesses I hold could knock the cover off the ball and return the portfolio to a profit.



LifeChoices said:


> Hey, with all due respect. I believe I have been as honest as I could be - check out my any of my posts and threads I've started. I wouldn't be bothered posting this comment had I not been honest in my thoughts.
> 
> I don't want to kick the guy, nor anyone else here - I'm a pacifist. This has been a most entertaining read. Let's not forget that this is a public forum, and if anyone makes certain assumptions. I think I have a right, like anyone else, to say what I think. It is fair game for me or anyone else to question how quickly Robusta has lost his initial investment. We can all see the title of this thread, all I'm doing is questioning it. I expect and receive the same treatment.
> 
> What is wrong with that?




Nothing wrong at all Lifechoices - keep it up. 

I will update the portfolio before new year the closed positions do not make pretty reading but there is some hope for the investments I still hold.


----------



## Intrinsic Value

LifeChoices said:


> Hey, with all due respect. I believe I have been as honest as I could be - check out my any of my posts and threads I've started. I wouldn't be bothered posting this comment had I not been honest in my thoughts.
> 
> I don't want to kick the guy, nor anyone else here - I'm a pacifist. This has been a most entertaining read. Let's not forget that this is a public forum, and if anyone makes certain assumptions. I think I have a right, like anyone else, to say what I think. It is fair game for me or anyone else to question how quickly Robusta has lost his initial investment. We can all see the title of this thread, all I'm doing is questioning it. I expect and receive the same treatment.
> 
> What is wrong with that?




Investing is a long game and while in the short term Robusta has made some errors the jury is still out on how some of those stocks may perform in the next 12 months.

I had a great 2010 and was doing ok up to the middle of this year then I sunk like a lead balloon since then.

However I still consider the companies i have invested in as good long term prospects so am still holding. 

The biggest mistake i think Robusta made was borrowing money for stocks that are a bit more on the speculative side and may require a lot of swings and roundabouts before they come good. If i was borrowing money i would stick to more conservative stocks yielding high dividends.

I have a strong cash flow and can hold for a long time without any fears or concerns. I am not buying anything more thou just accumulating cash and waiting to see if any stellar bargains appear.


----------



## robusta

*PORTFOLIO UPDATE*
Closed positions

Bought:
7,142   x TSM   @   $0.66   = $4713.72    (25/07/11)
546      x  MCE  @   $6.95   = $3797.70    (25/07/11)
385      x FGE   @    $5.37  = $2067.45     (26/07/11)
291      x FGE   @    $5.34  = $1553.94     (27/07/11)
29,524  x SOO  @    $0.105 = $3100.02     (01/08/11)
7407    x ZGL    @   $0.43   = $3185.01    (05/08/11)
386      x  MCE  @   $5.15   = $1995.62     (08/08/11)
288      x MIN    @   $9.96   =  $2686.48    (08/08/11)
809      x MCE   @   $4.20   =  $3397.80    (24/08/11)
85        xBHP     @  $35.60 =  $3026.00     (22/09/11)

Subtotal            $29,523.74

Sold:
7407 x ZGL     @$0.40  = $2962.80
7142 x TSM    @$0.49 = $3499.58
29,524x SOO  @ $0.10=$2952.40
85     xBHP     @$34.93=$2969.05
288  xMIN      @$10.18=$2931.84
1741 xMCE    @$3.50 = $6093.50
676 x FGE      @ $4.53 = $3062.28

Subtotal           $24,474.45

Capital gains (losses) ($5049.29)
Interest Paid / bank charges    = $1441.55
Brokerage Paid =  $418.60
Dividends Received = $453.16      Franking credit = $194.21

Tax Position, Capital Gains (Losses), Brokerage, Interest
($6,456.28) loss   Franking credits = $194.21

Open Positions
Bought:
853      x CCP     @    $4.48  = $3821.44    26/07/11
1115    x MTU    @   $2.62   = $2921.30    08/08/11
520      x CCP     @    $3.83    = $1991.60    08/08/11
65       x COH     @   $45.85=    $2980.25   30/09/11
1373   xOKN       @ $1.455 =    $1997.72)  23/11/11
 837x MCE          @ $3.08 =   $2577.96      21/12/11

Subtotal      $ 16,290.27

Current Portfolio Position

1373     x  CCP      @ $4.58  = $6288.34
65        x COH       @$62.20  =$4043.00
837    x   MCE     @ $3..10  = $2594.70
1115    x MTU       @ $2.89 = $3222.35
1373  x OKN         @$1.265= $1736.85

Subtotal = $17885.24


Total realised and unrealised loss -21.37% or - $4,861.31
Cash contributed $880.00 ($40/week)

Realised return on contributed equity -~ 833 %

Return on contributed equity             -~652%

Credit available $7946.73


----------



## suhm

Apologies lifechoices, messages and forum posts are terrible for tone and context.

There has been a reasonable amount of turnover in your portfolio which is fine even if you are investing for fundamental reasons but I don't think this was part of your plan.

What is your exit strategy?

Mine is that I buy stock for reason A. If reason A does not happen or changes I usually sell the stock. If it drops greater than about 15-20% I re-evaluate whether reason A is still valid or whether I have misinterpreted the situation. If it is still valid I hold and if it drops more I re-evaluate again and perhaps double down (the opposite of what TA people do I suppose). I actually do the same if it increases by 15-20% and pyramid into the position the same as a trend following TA position but I generally do not hold the second parcel as long if bought on the uptick.

If reason A has not occured but the stock has become quite overpriced I will usually sell about half and wait for reason A unless it is obscenely overpriced when I will sell all with a rough technical signal usually determining my exit point usually price weakness (quite unusual as I buy when I think it is underpriced).

If reason A happens I will hold and see where it ends up then will exit based on criteria on the above paragraph with selling to be more likely if I have identified a more interesting prospect. If it goes down when that occurs I exit on the criteria of the 1st paragraph.

I find it much more important to have a sell strategy than a buy one as the regret for me is much higher when selling if there is a subsequent gain and the pain of taking a loss is much higher than from realising a gain.

Stock investing is not a very psychologically rewarding activity as our minds are usually not wired to handle the way the market works appropriately hence the greater proportion of pathological traits in trading circles as it aides performance. Probably a bit of a controversial statement but seems logical from reading some psych/trader books.


----------



## robusta

suhm said:


> There has been a reasonable amount of turnover in your portfolio which is fine even if you are investing for fundamental reasons but I don't think this was part of your plan.




Not at all happy with the turnover, the capital losses and brokerage paid make it obvious mistakes have been made on both the buy and sell decisions.



suhm said:


> What is your exit strategy?




Will outline my exit strategy shortly.


----------



## skc

robusta said:


> Not at all happy with the turnover, the capital losses and brokerage paid make it obvious mistakes have been made on both the buy and sell decisions.
> 
> Will outline my exit strategy shortly.




IMO your BHP, MIN, FGE and probably TSM (even though it is well down on your entry) were pre-mature exits. 
Your ZGL and SOO were good exits on the back of poor entry. 

With MCE the problem was both entry and exit. Just goes to show why you need to size your position from a risk perspective (as opposed to reward) as one poor decision can skew your performance significantly. 

Your portfolio is now looking a lot prettier than before and is well off the bottom. And I trust you've learned valuable lessons without paying an arm and a leg (although that interest bill is pretty expensive!). 

Good luck for 2012.


----------



## robusta

robusta said:


> *PORTFOLIO UPDATE*
> Closed positions
> 
> Bought:
> 7,142   x TSM   @   $0.66   = $4713.72    (25/07/11)
> 546      x  MCE  @   $6.95   = $3797.70    (25/07/11)
> 385      x FGE   @    $5.37  = $2067.45     (26/07/11)
> 291      x FGE   @    $5.34  = $1553.94     (27/07/11)
> 29,524  x SOO  @    $0.105 = $3100.02     (01/08/11)
> 7407    x ZGL    @   $0.43   = $3185.01    (05/08/11)
> 386      x  MCE  @   $5.15   = $1995.62     (08/08/11)
> 288      x MIN    @   $9.96   =  $2686.48    (08/08/11)
> 809      x MCE   @   $4.20   =  $3397.80    (24/08/11)
> 85        xBHP     @  $35.60 =  $3026.00     (22/09/11)
> 
> Subtotal            $29,523.74
> 
> Sold:
> 7407 x ZGL     @$0.40  = $2962.80
> 7142 x TSM    @$0.49 = $3499.58
> 29,524x SOO  @ $0.10=$2952.40
> 85     xBHP     @$34.93=$2969.05
> 288  xMIN      @$10.18=$2931.84
> 1741 xMCE    @$3.50 = $6093.50
> 676 x FGE      @ $4.53 = $3062.28
> 
> Subtotal           $24,474.45
> 
> Capital gains (losses) ($5049.29)
> Interest Paid / bank charges    = $1441.55
> Brokerage Paid =  $418.60






skc said:


> IMO your BHP, MIN, FGE and probably TSM (even though it is well down on your entry) were pre-mature exits.
> Your ZGL and SOO were good exits on the back of poor entry.
> 
> With MCE the problem was both entry and exit. Just goes to show why you need to size your position from a risk perspective (as opposed to reward) as one poor decision can skew your performance significantly.
> 
> Your portfolio is now looking a lot prettier than before and is well off the bottom. And I trust you've learned valuable lessons without paying an arm and a leg (although that interest bill is pretty expensive!).
> 
> Good luck for 2012.




Reasons for selling

1) Made a mistake in the buy decision 
   a. Paid too much (incorrect valuation)
   b. Poor portfolio management
   c. Did not understand the business (cyclical nature, stability of revenue...)

2) Change in fundamentals (decline in performance or value)

3) Price rises above value 

4) Found something superior

ZGL was a combination of 1a, 1b,1c and 2 (however the opportunity to buy below book value at the moment is very attractive

TSM was 1a, 1b, 1c and 2

SOO was  1a, 1b, 1c and 2

BHP was mainly 1b, looking at the macro economic enviroment it would have been more prudent to keep some capital in reserve for future opportunities

MIN was mostly 1b again

MCE was  1a, 1b, 1c and 2 but in a big way particularily 1b- poor portfolio management

FGE mainly 1a and 1b again, time will tell if any other errors were made.


----------



## robusta

suhm said:


> I find it much more important to have a sell strategy than a buy one as the regret for me is much higher when selling if there is a subsequent gain and the pain of taking a loss is much higher than from realising a gain.
> 
> Stock investing is not a very psychologically rewarding activity as our minds are usually not wired to handle the way the market works appropriately hence the greater proportion of pathological traits in trading circles as it aides performance. Probably a bit of a controversial statement but seems logical from reading some psych/trader books.




Maybe I have a few pathological traits as I do not feel much pain or regret with this portfolio, I am actually enjoying the experience and feel very positive about the future.


----------



## So_Cynical

robusta said:


> Reasons for selling
> 
> 1) Made a mistake in the buy decision
> a. Paid too much (incorrect valuation)
> b. Poor portfolio management
> c. Did not understand the business (cyclical nature, stability of revenue...)
> 
> 2) Change in fundamentals (decline in performance or value)
> 
> 3) Price rises above value
> 
> 4) Found something superior
> 
> ZGL was a combination of 1a, 1b,1c and 2 (however the opportunity to buy below book value at the moment is very attractive
> 
> TSM was 1a, 1b, 1c and 2
> 
> SOO was  1a, 1b, 1c and 2
> 
> BHP was mainly 1b, looking at the macro economic enviroment it would have been more prudent to keep some capital in reserve for future opportunities
> 
> MIN was mostly 1b again
> 
> MCE was  1a, 1b, 1c and 2 but in a big way particularily 1b- poor portfolio management
> 
> FGE mainly 1a and 1b again, time will tell if any other errors were made.




Perhaps a bit of over analysis going on here.

Looking at my portfolio and trading performance (long only) over the last 12 months its very clear that buying almost anything from mid April onwards had very little chance of being successful....the general market trend was down, news was negative, sentiment was negative.

For long only punters it was near impossible to close out trades in front...up to mid April i was averaging 1 new winning trade every 3 and a half weeks, since April ive had only 1 winning (new, closed) trade, so 1 new winning trade in 8 months...IMO any entry in any stock had little to no chance of being correct over that time frame ~ 15 April 2011 to 5 Jan 2012...see All Ords chart below.
~


----------



## Macros

Robusta,

Thanks for sharing your journey thus far.

It has been a very difficult period to invest - you aren't alone.

 from me...

I like your current portfolio, however it is clearly very concentrated (which I personally like), however it does mean that risk management is much more important and something to be judged frequently.

I'm not sure if you have specifically stated your investment strategy, however it seems to me that it is to invest on the basis of maximising relative value whilst ensuring good quality. At the start of this thread you said something to the tune of this being a fairly boring strategy, but clearly it is not. I invest along the lines of this philosophy and it is actually a highly interesting but highly intensive strategy. It seems as though you have discovered this by having to make many changes.

I think that it is good that you have been able to change and adapt, because this makes us better investors. Unlike some people, I personally think value, or relative value, is in a constant state of flux. I believe that current price is constantly seeking fair value on the basis of future earnings and structure. Therefore what we once thought was stable value, turned out to be very volatile and changing.

As you have stated out of your learnings, macro factors are very important and this is something that I believe in strongly (hence the avatar). Unless one is investing in stable defensive businesses (which we are short of in Aus), then it is very difficult to determine what the macro factors at play will be over a decade. However, it is much easier to guess at over a one to two year period - with constant reassessment. My philosophy is to constantly weigh the macro factors and to determine how I think they will feed through in earnings over the next couple of years. 

I like your current portfolio composition, although a couple of pointers (which you probably already have an idea of):

- COH was fantastic value at $50 or below, but has now reached something close to fair value. At this stage I think that it is difficult to gauge what level of growth in value might be possible from here. In any case, it is a quality business and should pay out reliable dividends out of strong cash flows, however, the question is whether that fits in with your investment strategy (if I'm right in maximising value?)

- MCE has continued risks. I was a beneficiary of the big wave upwards but fortunately sold out close to the highs. It is good to see that they are working towards stable contracts, however, it is clearly not out of the woods yet. I have stayed my hand at entering again at $3 because of the lack of certainty and also I had to question whether it had better relative value than other opportunities. My point here is just that it is important to ensure that one is not focused on what they are used to at the expense of looking at better opportunities. I see the upside and understand why you are hanging in there.

- OKN looks to meet all criteria. However my concern is that whilst revenue has held up well, operating and free cash flow look very sickly. I haven't had an in-depth look at OKN so I don't know if there are good reasons why there will turn around soon (and they need to).

Again, thanks for sharing. I'm sure it would be easy to stop updating this thread, however it seems to have been very useful in developing your investment strategy and understanding.

What I have learnt over the past 6 months is that, sometimes, even if I can see excellent relative value, I must accept that macro factors play a much bigger role over the short term. I saw great opportunity in COH at under $50 and TLS recently at $3, however I thought that they didn't meet my criteria as they offered a lesser relative value. What I should have thought was that they had much better defensive characteristics during a period where that quality was important and that short-term opportunities in what I deem to be 'boring' investments can in fact provide the best opportunity. I was too caught up in looking at the value of precious metal producers  and the only thing that stopped me having a terrible 6 months was a 100% move in SAR.


----------



## Intrinsic Value

So_Cynical said:


> Perhaps a bit of over analysis going on here.
> 
> Looking at my portfolio and trading performance (long only) over the last 12 months its very clear that buying almost anything from mid April onwards had very little chance of being successful....the general market trend was down, news was negative, sentiment was negative.
> 
> For long only punters it was near impossible to close out trades in front...up to mid April i was averaging 1 new winning trade every 3 and a half weeks, since April ive had only 1 winning (new, closed) trade, so 1 new winning trade in 8 months...IMO any entry in any stock had little to no chance of being correct over that time frame ~ 15 April 2011 to 5 Jan 2012...see All Ords chart below.
> ~




Yes agree exactly the point i was making too. Not many people ahead over the last 8-9 months.


----------



## Macros

Intrinsic Value said:


> Yes agree exactly the point i was making too. Not many people ahead over the last 8-9 months.




Except a lot has happened in the world and the impact on companies over the last 8-9 months. It does not mean that change is unnecessary.


----------



## McLovin

Macros said:


> It does not mean that change is unnecessary.




Leverage changes the equation.


----------



## suhm

Intrinsic Value said:


> Yes agree exactly the point i was making too. Not many people ahead over the last 8-9 months.




My point wasn't really in regards to the performance of Robusta's portfolio but whether he had a systematic way of deciding when he should sell given from commentary seemed to putting forward a long term hold mentality but has had quite a reasonable amount of turnover for such a strategy.

Not many people making enough alpha to have positive returns over the last 9 months, I certainly haven't.

Robusta for point 3) in your selling reason, how do you decide the price is to far above value, as you see there is a problem as price can go a lot lower than value and this also goes in the other direction. How do you maximise the your time on the upwave?


----------



## Macros

McLovin said:


> Leverage changes the equation.




Only if margin lending is used. Is there a margin loan involved here?


----------



## McLovin

Macros said:


> Only if margin lending is used. Is there a margin loan involved here?




It's a lot harder when you know every dollar that you've lost will also have to be paid back. Perhaps illogical but it's the reason I will never leverage equities (or any investment in a business unless I had operational control or something approaching that).


----------



## Macros

McLovin said:


> It's a lot harder when you know every dollar that you've lost will also have to be paid back. Perhaps illogical but it's the reason I will never leverage equities (or any investment in a business unless I had operational control or something approaching that).




That is a fair enough comment - I guess it depends on the person and how they perceive the risk.


----------



## robusta

So_Cynical said:


> Perhaps a bit of over analysis going on here.
> 
> Looking at my portfolio and trading performance (long only) over the last 12 months its very clear that buying almost anything from mid April onwards had very little chance of being successful....the general market trend was down, news was negative, sentiment was negative.
> 
> For long only punters it was near impossible to close out trades in front...up to mid April i was averaging 1 new winning trade every 3 and a half weeks, since April ive had only 1 winning (new, closed) trade, so 1 new winning trade in 8 months...IMO any entry in any stock had little to no chance of being correct over that time frame ~ 15 April 2011 to 5 Jan 2012...see All Ords chart below.
> ~






Intrinsic Value said:


> Yes agree exactly the point i was making too. Not many people ahead over the last 8-9 months.




I would love to take these excuses but the fact remains the purtfolio has not been managed to my satisfaction to date, the main faults IMO are imparience, too much turnover and poor position sizing.


----------



## robusta

Macros said:


> Robusta,
> 
> Thanks for sharing your journey thus far.
> 
> It has been a very difficult period to invest - you aren't alone.
> 
> from me...
> 
> I like your current portfolio, however it is clearly very concentrated (which I personally like), however it does mean that risk management is much more important and something to be judged frequently.




This will allways be a concentrated portfolio, hopefully in the future this does not also lead to a high turnover.




Macros said:


> I'm not sure if you have specifically stated your investment strategy, however it seems to me that it is to invest on the basis of maximising relative value whilst ensuring good quality. At the start of this thread you said something to the tune of this being a fairly boring strategy, but clearly it is not. I invest along the lines of this philosophy and it is actually a highly interesting but highly intensive strategy. It seems as though you have discovered this by having to make many changes.






robusta said:


> Have not posted my strategy for this portfolio so here goes...
> 
> The light bulb moment for me as a investor was reading The Intelligent Investor by Benjamin Graham. The idea that you can buy a part ownership in a company when out of favour and profit from the subsequent performance of the company seems like a good strategy to me.
> 
> From here reading Warren Buffet taught me you could pay more than book value for a share particularily if the company makes good incremental returns on retained equity.
> 
> Next Philip Fischer, Roger Montgomery et al have further confirmed and refined these basics and I hope to be able to profit from these lessons.
> 
> So the things I look for in a stock/business are:
> 
> Competitive advantage
> Little or no debt
> Competent and honest management
> High ROE
> Good prospects
> A ability to retain profits and earn a high rate of return on those profits.




Note there is nothing in this strategy about picking where the market will go or regarding macroeconomic factors. I notice that you use a US indicator to predict the trend but for me I will rely on portfolio management to take advantage of market movements. If we have a bear market some cash in reserve to buy cheap, if a bull market holding good quality businesses to take advantage should keep me happy either way.




Macros said:


> I think that it is good that you have been able to change and adapt, because this makes us better investors. Unlike some people, I personally think value, or relative value, is in a constant state of flux. I believe that current price is constantly seeking fair value on the basis of future earnings and structure. Therefore what we once thought was stable value, turned out to be very volatile and changing.




I agree in the main Macros, some rare businesses however have stable and even growing value IMO. 
It is a fine line between 'falling in love' with a stock (and holding to your detriment) and 'jumping at shadows' (buying and selling on short term factors when the long term is positive) IMO.




Macros said:


> As you have stated out of your learnings, macro factors are very important and this is something that I believe in strongly (hence the avatar). Unless one is investing in stable defensive businesses (which we are short of in Aus), then it is very difficult to determine what the macro factors at play will be over a decade. However, it is much easier to guess at over a one to two year period - with constant reassessment. My philosophy is to constantly weigh the macro factors and to determine how I think they will feed through in earnings over the next couple of years.




I respect your ability to do this Macros, you are up against almost every analyst out there, for me I dont think I can beat them at their own game. I will be looking for those stable defensive businesses and also cyclicals at attractive prices.




Macros said:


> I like your current portfolio composition, although a couple of pointers (which you probably already have an idea of):
> 
> - COH was fantastic value at $50 or below, but has now reached something close to fair value. At this stage I think that it is difficult to gauge what level of growth in value might be possible from here. In any case, it is a quality business and should pay out reliable dividends out of strong cash flows, however, the question is whether that fits in with your investment strategy (if I'm right in maximising value?)




Happy to hold for those reliable (growing) dividends, I still think there are many years of growth left in COH and one day just as the market recently offered a crazy low price it will offer a crazy high price. 



Macros said:


> - MCE has continued risks. I was a beneficiary of the big wave upwards but fortunately sold out close to the highs. It is good to see that they are working towards stable contracts, however, it is clearly not out of the woods yet. I have stayed my hand at entering again at $3 because of the lack of certainty and also I had to question whether it had better relative value than other opportunities. My point here is just that it is important to ensure that one is not focused on what they are used to at the expense of looking at better opportunities. I see the upside and understand why you are hanging in there.




Good on you I was not so smart and did not sell anywhere near the highs in my SMSF (I still hold having reduced the position size). 
MCE does have continued risks but the work will come IMO.



Macros said:


> - OKN looks to meet all criteria. However my concern is that whilst revenue has held up well, operating and free cash flow look very sickly. I haven't had an in-depth look at OKN so I don't know if there are good reasons why there will turn around soon (and they need to).




Normally I do not like turnaround stories but OKN have been investing to reposition the business to compete with the international players, I will be watching closely.




Macros said:


> - Again, thanks for sharing. I'm sure it would be easy to stop updating this thread, however it seems to have been very useful in developing your investment strategy and understanding.




That it has, thankyou Macros


----------



## Macros

Thanks Robusta,

That gives me a better understanding of where you are coming from. My biggest problem with employing long term value plays in Australia is that there are so few companies that fit the bill. I think more Australian value investors should be widening their scope and consider companies that are not available on our market and are able to provide much greater diversification of business assets/competitive advantage. For example, Disney looks pretty good in terms of current margin of safety, stable ROE, growing dividends, a consistent growth in value and is a company type that we lack on the ASX.

In terms of exposure to a very long term business (e.g. could easily hold for 10 years without worry), the only company that you currently hold that I personally would view that would fit the longer term criteria would be COH.

It would be very easy to disagree with me, however it is my view that the other companies are better fitted to a 'swing' value type of concept, which is pretty much what I do in that I understand that prices are highly likely to move towards value, but that value is constantly changing and market/economic forces play a significant role over shorter periods of time (e.g. 2-3 years). MCE is 100% in this camp.


----------



## robusta

Macros said:


> Thanks Robusta,
> 
> That gives me a better understanding of where you are coming from. My biggest problem with employing long term value plays in Australia is that there are so few companies that fit the bill. I think more Australian value investors should be widening their scope and consider companies that are not available on our market and are able to provide much greater diversification of business assets/competitive advantage. For example, Disney looks pretty good in terms of current margin of safety, stable ROE, growing dividends, a consistent growth in value and is a company type that we lack on the ASX.




There are a few on the ASX that fit my criteria however in the future and as my knowledge grows I may look at international shares.




Macros said:


> In terms of exposure to a very long term business (e.g. could easily hold for 10 years without worry), the only company that you currently hold that I personally would view that would fit the longer term criteria would be COH.




I would not say I could hold any business without worry but MTU and CCP are very long term businesses as well, I would be surprised if I do not still hold at least one of my top three holdings in 10 years.




Macros said:


> It would be very easy to disagree with me, however it is my view that the other companies are better fitted to a 'swing' value type of concept, which is pretty much what I do in that I understand that prices are highly likely to move towards value, but that value is constantly changing and market/economic forces play a significant role over shorter periods of time (e.g. 2-3 years). MCE is 100% in this camp.




I agree value is constantly changing the goal for me is to identify businisses with a growing value over a long period of time and taking advantage of the positive compounding.


----------



## robusta

McLovin said:


> Leverage changes the equation.




Leverage is a two edged sword, one day it will work in my favour.



Macros said:


> Only if margin lending is used. Is there a margin loan involved here?




This is a line of credit on my mortgage - so no margin calls here.



McLovin said:


> It's a lot harder when you know every dollar that you've lost will also have to be paid back. Perhaps illogical but it's the reason I will never leverage equities (or any investment in a business unless I had operational control or something approaching that).




Not a worry for me, I do not lose any sleep over this issue. IMO any one of my top three holdings is likely to wipeout the current deficit - given time.


----------



## robusta

suhm said:


> Robusta for point 3) in your selling reason, how do you decide the price is to far above value, as you see there is a problem as price can go a lot lower than value and this also goes in the other direction. How do you maximise the your time on the upwave?




The valuation technique I use is outlined in Value-able by Roger Montgomery. I know it is not exact but find it a good rule of thumb.

There is no set % of how far above 'value' the price has to be before I sell it depends on the growth prospects of the business and also on the portfolio construction.

I use no TA or trend techniques in this decision but simply try to buy at discounts to my estimate of IV and sell at a premuim to my estimate of IV.


----------



## odds-on

Macros said:


> Thanks Robusta,
> 
> That gives me a better understanding of where you are coming from. My biggest problem with employing long term value plays in Australia is that there are so few companies that fit the bill. I think more Australian value investors should be widening their scope and consider companies that are not available on our market and are able to provide much greater diversification of business assets/competitive advantage. For example, Disney looks pretty good in terms of current margin of safety, stable ROE, growing dividends, a consistent growth in value and is a company type that we lack on the ASX.
> 
> In terms of exposure to a very long term business (e.g. could easily hold for 10 years without worry), the only company that you currently hold that I personally would view that would fit the longer term criteria would be COH.
> 
> It would be very easy to disagree with me, however it is my view that the other companies are better fitted to a 'swing' value type of concept, which is pretty much what I do in that I understand that prices are highly likely to move towards value, but that value is constantly changing and market/economic forces play a significant role over shorter periods of time (e.g. 2-3 years). MCE is 100% in this camp.





Macros,

Great post. IMO there are few companies in the ASX that have the attributes to suit long term value plays, those that do are so closely followed that any meaningful discount rarely arises.

Your ‘swing’ value type of concept has legs. GCS would be an ideal candidate to swing into late into FY12 or 13 subject to your economic indicators picking up. Price has been dropping to 52 week lows, price to sales below 1, management advise FY12 earnings will be as per FY11 earnings, the outlook for FY13 is rosy subject to contract wins. Watch out for management guidance, then wait for the economic indicators to pick up, then only buy at a price to sales ratio that compensates for the risk.

Cheers

Oddson


----------



## odds-on

robusta said:


> The valuation technique I use is outlined in Value-able by Roger Montgomery. I know it is not exact but find it a good rule of thumb.




Expected value. The investors friend.

http://www.investopedia.com/terms/e/expected-value.asp#axzz1iv3RXwjv

Cheers

Oddson


----------



## Macros

odds-on said:


> Macros,
> 
> Great post. IMO there are few companies in the ASX that have the attributes to suit long term value plays, those that do are so closely followed that any meaningful discount rarely arises.
> 
> Your ‘swing’ value type of concept has legs. GCS would be an ideal candidate to swing into late into FY12 or 13 subject to your economic indicators picking up. Price has been dropping to 52 week lows, price to sales below 1, management advise FY12 earnings will be as per FY11 earnings, the outlook for FY13 is rosy subject to contract wins. Watch out for management guidance, then wait for the economic indicators to pick up, then only buy at a price to sales ratio that compensates for the risk.
> 
> Cheers
> 
> Oddson




Exactly.



> Expected value. The investors friend.




I like it. I think intrinsic value is way overused because one can only assess intrinsic value if all factors are known with a very high certainty and low risk of error. In reality, this isn't practicable. I tend to think of 'fair value' in line with the definition of expected value.


----------



## Macros

robusta said:


> Leverage is a two edged sword, one day it will work in my favour.




I think there is a good probability that it will do so this year.


----------



## robusta

odds-on said:


> Macros,
> 
> Great post. IMO there are few companies in the ASX that have the attributes to suit long term value plays, those that do are so closely followed that any meaningful discount rarely arises.
> 
> Your ‘swing’ value type of concept has legs. GCS would be an ideal candidate to swing into late into FY12 or 13 subject to your economic indicators picking up. Price has been dropping to 52 week lows, price to sales below 1, management advise FY12 earnings will be as per FY11 earnings, the outlook for FY13 is rosy subject to contract wins. Watch out for management guidance, then wait for the economic indicators to pick up, then only buy at a price to sales ratio that compensates for the risk.
> 
> Cheers
> 
> Oddson




Hard to argue against that, GCS does seem a very attractive company. I would normally like to see a higher ROE and a lower Debt/Equity but the opportunity to buy below book value is very attractive, cash flow in recent times also looks excellent.



odds-on said:


> Expected value. The investors friend.
> 
> http://www.investopedia.com/terms/e/expected-value.asp#axzz1iv3RXwjv
> 
> Cheers
> 
> Oddson






Macros said:


> Exactly.
> 
> 
> 
> I like it. I think intrinsic value is way overused because one can only assess intrinsic value if all factors are known with a very high certainty and low risk of error. In reality, this isn't practicable. I tend to think of 'fair value' in line with the definition of expected value.




You are right the term intrinsic value implies a exact, correct figure when in reality it is more of a range eg MTU $3.60-$4.40 hence the need to apply a margin of safety - another term that implies extra meaning that is misleading if you get the IV wrong.

http://www.investopedia.com/terms/m/marginofsafety.asp#axzz1ivVbPMQl


----------



## skc

robusta said:


> Leverage is a two edged sword, one day it will work in my favour.




But what one edge has killed, the other edge couldn't revive.


----------



## odds-on

robusta said:


> Hard to argue against that, GCS does seem a very attractive company. I would normally like to see a higher ROE and a lower Debt/Equity but the opportunity to buy below book value is very attractive, cash flow in recent times also looks excellent.
> 
> 
> 
> 
> 
> You are right the term intrinsic value implies a exact, correct figure when in reality it is more of a range eg MTU $3.60-$4.40 hence the need to apply a margin of safety - another term that implies extra meaning that is misleading if you get the IV wrong.
> 
> http://www.investopedia.com/terms/m/marginofsafety.asp#axzz1ivVbPMQl




IMO the market prices any business by considering the probability of both long term survival and short term success. Long term survival is different to short term success and should not be confused. These two probabilities need to be considered properly when valuing a business and the appropriate valuation tools used.


----------



## robusta

skc said:


> But what one edge has killed, the other edge couldn't revive.




True but in my case just a cflesh wound, not terminal. 



odds-on said:


> IMO the market prices any business by considering the probability of both long term survival and short term success. Long term survival is different to short term success and should not be confused. These two probabilities need to be considered properly when valuing a business and the appropriate valuation tools used.





Sorry I do not understand. Are you saying the market is efficent in pricing short term success (or lack of) along with long term survival?

What sort of different valuation tools would you use for each?

Surely it is not enough for a business to survive long term as a part owner you would want it to thrive IMO. The historical difference between QAN and BHP come to mind as a example.


----------



## odds-on

robusta said:


> True but in my case just a cflesh wound, not terminal.
> 
> 
> 
> 
> Sorry I do not understand. Are you saying the market is efficent in pricing short term success (or lack of) along with long term survival?
> 
> What sort of different valuation tools would you use for each?
> 
> Surely it is not enough for a business to survive long term as a part owner you would want it to thrive IMO. The historical difference between QAN and BHP come to mind as a example.




Robusta,

IMO I believe the market is broadly efficient in pricing the probability of both long term survival and short term success of any business. Long term survival is different to short term success and should not be confused.  For the sake of simplicity I class all businesses as either having Low, Medium or High probability with respect to long term survival (5-10 years). To aid me I use some rules of thumb; research data suggests that once a business has been operating for a few years then the probability of it surviving the long term is more or less the same irrespective of the business size. However until it has been operating for a few years there is a high probability of failure. 

Any business without a few years worth of profitable operating history I class as Low. My valuation is done using liquidation value (search the internet for Benjamin Graham type formulas) as the odds are likely that it will fail. I want a discount to liquidation value and the business to be wound up in a timely manner to ensure my return.

How do I differentiate between Medium and High? 

A high probability means an established company with many years of operating history working in a industry where it is either a monopoly or part of duopoly/oligopoly and provides a product that human society needs to function such as banks/electricity/supermarkets/water/insurance/gas/Microsoft and so on. How difficult is it for society to change from the product? Thinking about the scale of the change required usually helps me the most when thinking about the probability, if the scale of change is large then it is unlikely. I value this types of business using earnings yield and comparing it to long term government bonds. Now any company with a high probability of long term survival will typically trade around a PE range of 12-15 and will be closely followed with rare opportunities for a large discount. It is therefore advantageous to purchase when they are trading at lower of the range and take a long term buy and hold for an economic cycle. The number of companies that can treated like this is small.

If I do not think the business can be classed as Low nor High then it can only be Medium, that is to say that it is a 50/50 or 60/40 chance whether it will survive the next 5 to 10 years. There will be some operating history but it may not have been not always be profitable, no recurring revenues, no monopoly,  I cannot see a real need to human society for the product and so on. I value these types of businesses using the price to sales ratio. Why Price to Sales Ratio? 1. It is a proven value indicator 2. It makes me focus on the not paying for too much for revenue and possible future revenue over the next couple of years. 

That is the long term survival what about short term success. I define short term success as an earnings surprise within a 12 month period, obviously it depends on the business model to what could trigger this earning surprise. Investors want to make a quick buck so they want a business to have some short term success such as an earnings surprise or contract win etc. The market reacts positively to these surprises so an investor can make a tidy profit. But the probability of short term success is different, a business like a gas utility has a high probability of long term survival yet could have the same probability of a short term success as a business with low probability of long term survival. However the effect on the share price following some short term success will be different between the two businesses, in the case of a company trading at liquidation value it could double in price in a year, I doubt the price of a gas utility will. This difference in effect on the share price due to short term success affects the expected value of the investment. When assessing the possibility of short term success I merely adjust the liquidation value or price to sales ratio or PE ratio to what it could be if the short term success happened. 

Expected value is the investors friend. Trust me I do not use spreadsheets or complicated maths, I just try evaluate how the market is pricing the business and what needs to happen for me to make a nice return. The market is broadly efficient not a 100% so sometimes opportunities present themselves.

Cheers 

Oddson


----------



## robusta

Thankyou for your reply odds-on.




odds-on said:


> IMO I believe the market is broadly efficient in pricing the probability of both long term survival and short term success of any business. Long term survival is different to short term success and should not be confused.  For the sake of simplicity I class all businesses as either having Low, Medium or High probability with respect to long term survival (5-10 years). To aid me I use some rules of thumb; research data suggests that once a business has been operating for a few years then the probability of it surviving the long term is more or less the same irrespective of the business size. However until it has been operating for a few years there is a high probability of failure.
> 
> Any business without a few years worth of profitable operating history I class as Low. My valuation is done using liquidation value (search the internet for Benjamin Graham type formulas) as the odds are likely that it will fail. I want a discount to liquidation value and the business to be wound up in a timely manner to ensure my return.




A good way to reduce risk IMO




odds-on said:


> How do I differentiate between Medium and High?
> 
> A high probability means an established company with many years of operating history working in a industry where it is either a monopoly or part of duopoly/oligopoly and provides a product that human society needs to function such as banks/electricity/supermarkets/water/insurance/gas/Microsoft and so on. How difficult is it for society to change from the product? Thinking about the scale of the change required usually helps me the most when thinking about the probability, if the scale of change is large then it is unlikely. I value this types of business using earnings yield and comparing it to long term government bonds. Now any company with a high probability of long term survival will typically trade around a PE range of 12-15 and will be closely followed with rare opportunities for a large discount. It is therefore advantageous to purchase when they are trading at lower of the range and take a long term buy and hold for an economic cycle. The number of companies that can treated like this is small.




Looks to me like the 'high' businesses are where the competitive advantages would be found. That is a very good search criteria IMO.
When you use this valuation technique do you take into account ROE, payout ratio and the capital intensity of the business? I would think variations in these numbers would make a vast difference to your returns.




odds-on said:


> If I do not think the business can be classed as Low nor High then it can only be Medium, that is to say that it is a 50/50 or 60/40 chance whether it will survive the next 5 to 10 years. There will be some operating history but it may not have been not always be profitable, no recurring revenues, no monopoly,  I cannot see a real need to human society for the product and so on. I value these types of businesses using the price to sales ratio. Why Price to Sales Ratio? 1. It is a proven value indicator 2. It makes me focus on the not paying for too much for revenue and possible future revenue over the next couple of years.




Price to Sales Ratio is not a indicator I use. I view it as a variant of P/E ratio and neither take into account ROE.



odds-on said:


> That is the long term survival what about short term success. I define short term success as an earnings surprise within a 12 month period, obviously it depends on the business model to what could trigger this earning surprise. Investors want to make a quick buck so they want a business to have some short term success such as an earnings surprise or contract win etc. The market reacts positively to these surprises so an investor can make a tidy profit. But the probability of short term success is different, a business like a gas utility has a high probability of long term survival yet could have the same probability of a short term success as a business with low probability of long term survival. However the effect on the share price following some short term success will be different between the two businesses, in the case of a company trading at liquidation value it could double in price in a year, I doubt the price of a gas utility will. This difference in effect on the share price due to short term success affects the expected value of the investment. When assessing the possibility of short term success I merely adjust the liquidation value or price to sales ratio or PE ratio to what it could be if the short term success happened.




I have a lot to learn before I can predict the short term success of a business.



odds-on said:


> Expected value is the investors friend. Trust me I do not use spreadsheets or complicated maths, I just try evaluate how the market is pricing the business and what needs to happen for me to make a nice return. The market is broadly efficient not a 100% so sometimes opportunities present themselves.




I do like this approach, I do the same thing but in a slightly different way by:

1) Looking for those competitive advantages

2) Looking for a high or rising ROE.

3) Comparing the dividend yield to my required return

4) Paying a premium for retained capital in the business that will in all probability earn a high rate of return

5) Trying to buy at a discount.


----------



## Macros

odds-on said:


> The market is broadly efficient not a 100% so sometimes opportunities present themselves.




I agree the the market is broadly efficient based on aggregate expectations and I have been able to determine this through my research. However, it is frequently inefficient in components. Therefore I think there are always opportunities.


----------



## McLovin

robusta said:


> I do like this approach, I do the same thing but in a slightly different way by:
> 
> 1) Looking for those competitive advantages
> 
> 2) Looking for a high or rising ROE.
> 
> 3) Comparing the dividend yield to my required return
> 
> 4) Paying a premium for retained capital in the business that will in all probability earn a high rate of return
> 
> 5) Trying to buy at a discount.




I think sometimes one can overfocus on RoE as though it is some sort magic ratio. Yes, it can identify low capital intesity businesses and yes, it can sometimes indicate competitive advantage but in some businesses (esp service driven businesses) it is not really that great a metric and paying attention to margins will probably reveal more about competitive advantage than RoE. Just my .


----------



## robusta

McLovin said:


> I think sometimes one can overfocus on RoE as though it is some sort magic ratio. Yes, it can identify low capital intesity businesses and yes, it can sometimes indicate competitive advantage but in some businesses (esp service driven businesses) it is not really that great a metric and paying attention to margins will probably reveal more about competitive advantage than RoE. Just my .




The way I look at it is to treat stocks as buying part of a business or to put it another way buying equity in a business. It is paramount to me to get the largest return I can for every $1.00 of equity I purchase. 

If I had the choice between two businesses with the same assets, one earning 10% on those assets the other earning 30% all things being equal I would be happy to pay significantly more for the higher earner. The second business has either higher revenue of margins or both.

Margins and ROE often go hand in hand IMO.


----------



## McLovin

robusta said:


> If I had the choice between two businesses with the same assets, one earning 10% on those assets the other earning 30% all things being equal I would be happy to pay significantly more for the higher earner. The second business has either higher revenue of margins or both.




Of course. But how often are you in such an easy position to be comparing two companies with identical assets, or even significantly similar assets where there is such a large variation? 

I'm not saying ignore RoE but realise that making sweeping inferences based on it can be a trap. A company with a genuine competitive advantage will have a high RoE and high margins. A company with no competitive advantage may have a high RoE (because of the business it is in) but will probably not have high margins.

Of course there are no hard and fast rules.


----------



## odds-on

Macros said:


> I agree the the market is broadly efficient based on aggregate expectations and I have been able to determine this through my research. However, it is frequently inefficient in components. Therefore I think there are always opportunities.




Macros,

How many components do you consider? I really only focus on long term survival and short term success as I think they have the most influence on price and therefore my returns.

Robusta,

I agree that competitive advantage is king. However, I think that until I have spent 30 years owning and studying numerous businesses I will never be at the stage where I can successfully identify it, especially to a point where I am comfortable purchasing with little discount. Also everybody else is looking for it, so surely the thousands of participants in the ASX must have identified every company with significant competitive advantage by now? The ASX however seems to have 100 or so alright businesses where if the correct factors (fundamental/technical/economic/business model/takeover/ ‘gut feel’)  are considered then the expected value of the investment makes a worthwhile investment. Due to the market being broadly efficient, sometimes opportunities present themselves where the price is wrong for either the probability of long term survival or short term success . The factors depend on the business model but it does not need to be more than a few factors, just the right ones! As per my GCS example, monitor the management guidance, watch the correct economic indicator and then buy at the right price to sales ratio.

There is no magic ratio. Price to Sale Ratio work for the Medium class. It makes me focus on how much revenue does buying the whole business get me. Revenue is where the “economic value” of the business begins and as an equity investor with no control of the inner workings of a company, if the beginning does not look good then I am not interested.

Cheers 

Oddson


----------



## robusta

odds-on said:


> I agree that competitive advantage is king. However, I think that until I have spent 30 years owning and studying numerous businesses I will never be at the stage where I can successfully identify it, especially to a point where I am comfortable purchasing with little discount. Also everybody else is looking for it, so surely the thousands of participants in the ASX must have identified every company with significant competitive advantage by now?




Not so sure about this, there are a lot of different strategies out there and with the rise of ETF's, high frequency trading and a general short term outlook IMO there should be plenty of opportunities.



odds-on said:


> The ASX however seems to have 100 or so alright businesses where if the correct factors (fundamental/technical/economic/business model/takeover/ ‘gut feel’)  are considered then the expected value of the investment makes a worthwhile investment. Due to the market being broadly efficient, sometimes opportunities present themselves where the price is wrong for either the probability of long term survival or short term success . The factors depend on the business model but it does not need to be more than a few factors, just the right ones! As per my GCS example, monitor the management guidance, watch the correct economic indicator and then buy at the right price to sales ratio.





This makes sense but I would still like to search for the extraordinary businesses in this group and wait for the rere opportunities - if I can be patient enough.




odds-on said:


> There is no magic ratio. Price to Sale Ratio work for the Medium class. It makes me focus on how much revenue does buying the whole business get me. Revenue is where the “economic value” of the business begins and as an equity investor with no control of the inner workings of a company, if the beginning does not look good then I am not interested.




I can see your logic in this but for me I am happy to pay more for the revenue of a business that I think may be extraordinary, particularily if they have the ability to earn high rates on retained capital.


----------



## Macros

odds-on said:


> Macros,
> 
> How many components do you consider? I really only focus on long term survival and short term success as I think they have the most influence on price and therefore my returns.




Interesting question.

I guess I think along similar lines if I were to use the words long term survival and short term success, however I think the way in which I think about those concepts are different. I'd also point out that my views and investment philosophy have been growing and are in a state of flux - I have not yet reached a point where I can encapsulate all things that I need to consider before making a decision to maximise potential while minimising risks (I always seek to do things better).

Components:


Long term value trend against current apparent value
Short term potential impacts or drivers of value change
Qualitative factors which may impact value over 1-2 years (e.g. cash flow, debt, sustainability and other issues)
The macro factors driving the company - e.g. market trends, global factors, things which could throw value around like a leaf on a river
*New: macro economic indicator to inform me quantitatively of likely market trend direction and strength. I've had some exceptionally out-sized gains eroded by getting the trend wrong. Invest in companies that fit in with the market trend and point in the cycle.


----------



## Macros

Oddson,

I'm conducting thorough review of the market. Came across a particular stock (one of many so far - so many opportunities!) and thought... that is ripe for the upswing.


Lo and behold... GCS as you mentioned previously.

As I conduct my review, it is clear that there are many opportunities at present - hopefully a time soon to repair your balance sheet Robusta!

Btw, sorry if this is taking away from your thread Robusta - let me know if these types of discussions are best taken elsewhere.


----------



## robusta

Macros said:


> Oddson,
> 
> I'm conducting thorough review of the market. Came across a particular stock (one of many so far - so many opportunities!)




I agree there are a fair few opportunities at the moment.



Macros said:


> and thought... that is ripe for the upswing.
> View attachment 45768
> 
> Lo and behold... GCS as you mentioned previously.
> 
> As I conduct my review, it is clear that there are many opportunities at present - hopefully a time soon to repair your balance sheet Robusta!
> 
> Btw, sorry if this is taking away from your thread Robusta - let me know if these types of discussions are best taken elsewhere.




GCS I agree is undervalued and the IV and expected price is higher then the current price but I see this as more a short to medium term opportunity (along with AZG on Suhm's thread) and not the sort of extraordinary business I am looking for with the potentual to hold through the cycle.

GCS has for me a ROE that is a bit low and a debt/equity that is a little too high for my taste, I would buy but would like to pay a whole lot less to take on that risk. 

In my case portfolio management has to be considered as well, as not much available capital is left any further investments will have to be at very attractice prices.

Ahead of these guys in this sort of business on my watch list are FGE, MND, SWL and perhaps GNG, just looking for the right price on these.

Happy to discuss any stock, any time.


----------



## Macros

Robusta,

With regards to GCS, I was definitely referring to short to medium-term cycles. I personally view most Aussie stocks in terms of value cycles, it just depends on how long they can last. It isn't necessarily in the best economic segment, but if positivity flows through to the markets, the stock price could react well given that it appears to have the value to support it. It wouldn't be a prime candidate for me, but it definitely holds some opportunity for now.

I personally think the cycle is bottoming. Doesn't necessarily make a lot of sense when looking at the global geopolitical and sovereign debt concerns, but markets are always looking ahead. It is also supported by a change of trend in sentiment indicators.

I don't understand MND - has always looked like more of a market darling and prices seem to spend way too much time far above value. I think that the mining services business are in a good spot right now and should do well during improving market conditions. Many many opportunities, but hard to prioritise them right now due to the quantity and the balance of risk/reward. 

The one company that has my attention right now (unexpectedly) is MGX - I don't typically like iron ore producers, however it appears to have the best recovery potential of all the stocks I've looked through thus far. Obviously it is not a long-term stable value play, but is more relevant to improving macro conditions combined with a likely value gap.


----------



## odds-on

Macros said:


> Interesting question.
> 
> I guess I think along similar lines if I were to use the words long term survival and short term success, however I think the way in which I think about those concepts are different. I'd also point out that my views and investment philosophy have been growing and are in a state of flux - I have not yet reached a point where I can encapsulate all things that I need to consider before making a decision to maximise potential while minimising risks (I always seek to do things better).
> 
> Components:
> 
> 
> Long term value trend against current apparent value
> Short term potential impacts or drivers of value change
> Qualitative factors which may impact value over 1-2 years (e.g. cash flow, debt, sustainability and other issues)
> The macro factors driving the company - e.g. market trends, global factors, things which could throw value around like a leaf on a river
> *New: macro economic indicator to inform me quantitatively of likely market trend direction and strength. I've had some exceptionally out-sized gains eroded by getting the trend wrong. Invest in companies that fit in with the market trend and point in the cycle.




Views and investment philosophy change over time. Personally I started off reading the usual value investing books, then dabbled in some trading and technical analysis books, went back to value investing books. I then did a lot of reading on the internet. Started searching for books written by people who have outperformed the market for a significant period of time – I doff my cap to Mohnish Pabrai and Joel Greenblatt (You Can Be a Stock Market Genius: Uncover the Secret Hiding Places of Stock Market Profits is still the best book on investing IMO).Reread some value books, even bought a book by Monty. I want to start adding some market valuations techniques to my selection criteria  – there is good article by Bassanese in this month’s issue of AFR smart investor, he reckons the market is undervalued by a number of tests. I will do some more online research about indicators such as the buffett ratio etc.

My research to date suggests two possible investment strategies suitable for me:-

1.	Applying a “stingy investor” method. Refer http://www.ndir.com/SI/articles/0111.shtml. I think his screening criteria is an excellent starting point. Price to sales less than 1 to check the stock his cheap, then some balance sheet checks and cash flow checks to confirm the stock is safe. Cheap and safe, a great place to start for me. Do some research then buy a handful, and hold for a year or so then sell and select a new handful. Repeat until retirement.
2.	Pick my  own stocks. Usually search using one of the low price to sales, high div yield plus low P/E, forum tips, magazine tips and so on. I then spent time trying to figure out the expected value of the investments - I discard 19 out of 20 of my ideas, most sink like a lead balloon after 15 minutes of serious research.

I suspect that 1.  will give the best returns for the amount of work involved. I am confident that I could get 15% CAGR over the long term for less than 40 hours a year work as long as I switch the market off in my head for the year. All I need to do is pick a date each year, run a screen to get it down to a dozen or so, spend 3 hours on each checking the “safe” aspect of the stock, select the best 10, buy and hold for a period suitable for tax purposes then sell. Unsurprisingly I think I am smart enough to pick my own, therefore I have been applying 2. for the last 18 months. I have made profit but it is not long enough a time period to see if I have good stock picking ability. 

As for GCS, I will wait for management guidance about large contract wins, as I need some confirmation that FY13 will be rosy before I step in.

Robusta, sorry for clogging the thread up.


----------



## robusta

Macros said:


> Robusta,
> 
> With regards to GCS, I was definitely referring to short to medium-term cycles. I personally view most Aussie stocks in terms of value cycles, it just depends on how long they can last. It isn't necessarily in the best economic segment, but if positivity flows through to the markets, the stock price could react well given that it appears to have the value to support it. It wouldn't be a prime candidate for me, but it definitely holds some opportunity for now.




So "A rising tide lifts all boats", I do agree to stretch the metaphor GCS is a more seaworthy boat than most.


I personally think the cycle is bottoming. Doesn't necessarily make a lot of sense when looking at the global geopolitical and sovereign debt concerns, but markets are always looking ahead. It is also supported by a change of trend in sentiment indicators.



Macros said:


> I don't understand MND - has always looked like more of a market darling and prices seem to spend way too much time far above value. I think that the mining services business are in a good spot right now and should do well during improving market conditions. Many many opportunities, but hard to prioritise them right now due to the quantity and the balance of risk/reward.




There is a reason MND is a bit of a market darling, the performance over a long period of time is fantastic, it is however very difficult to buy at a attractive price.

This from me on MND thread Feb last year.



robusta said:


> The time is here for me. Sold out of MND today at $20.06, love the company but my view is the sp has run too far past IV. Bought in Jan 2010 @ ~ 12.50 and again in May @ ~ $13.00 wanted to hold long term but could not go past market offer of $20.00 +







Macros said:


> The one company that has my attention right now (unexpectedly) is MGX - I don't typically like iron ore producers, however it appears to have the best recovery potential of all the stocks I've looked through thus far. Obviously it is not a long-term stable value play, but is more relevant to improving macro conditions combined with a likely value gap.




Not a lot I can say about MGX, the numbers do look great but too many variables for me to try to value - good luck if you hold however.


----------



## robusta

*NEW INVESTMENT*

Bought 185 x QBE @ $10.81 = $1999.85

To get these guys at a touch above book value IMO should work out well given time.

Despite the recent downgrade I think QBE have a long history of good discipline in pricing premiums, and run a very conservative ballance sheet.

Have only allocated a small % of funds to QBE in a nod towards current volatility but will consider adding to holding in the price weakens a further 10-15% from here.

After banging on about competitive advantage on this thread in recent times I am not sure if QBE has one but if not it is still a very good business. Insurance customers are reasonably "sticky" and slow to change, QBE also has a very diversified spread of income and is one of the few ASX listed companies with a succesful history of growing by aquisition.


----------



## skc

robusta said:


> *NEW INVESTMENT*
> 
> Bought 185 x QBE @ $10.81 = $1999.85
> 
> To get these guys at a touch above book value IMO should work out well given time.




1. Why the fascination with book value? You do know it is nothing more than an accounting term (ana historical one at that)? E.g. Mnay European banks trade at 50% book value...

2. Didn't you used to have a day job?


----------



## robusta

skc said:


> 1. Why the fascination with book value? You do know it is nothing more than an accounting term (ana historical one at that)? E.g. Mnay European banks trade at 50% book value...




Sure do, but the main metric I use as previously discussed is ROE. Historically sp performance is often linked to a (hopefully growing) book value.




skc said:


> 2. Didn't you used to have a day job?




On holidays until 30/1


----------



## robusta

*NEW INVESTMENT*

PRV - Premium Investors Limited

(Not PMV that is Premium Investments with Soloman Lew and Mark Mcinnes

Bought 916 @ 0.655 = $599.98

Back to Benjamin Graham and his supposition that if you can buy a LIC at less than the NTA things should work out OK.

With PRV I have bought not far above the 52 week low ($0.65) a nice ~ 22% discount to NTA, a 10% plus fully franked dividend yield and a generous 5% DRP discount (will participate).

PMV is run by TRG who I would like to invest in one day as well.

The funds are invested by these boutique managers.

http://www.premiuminvestors.com.au/about-premium/tis.html

http://www.premiuminvestors.com.au/about-premium/iml.html

http://www.premiuminvestors.com.au/about-premium/orion.html

http://www.premiuminvestors.com.au/about-premium/rare.html

http://www.premiuminvestors.com.au/about-premium/treasury-asia.html

http://www.premiuminvestors.com.au/about-premium/aubrey.html

http://www.premiuminvestors.com.au/about-premium/ar-capital.html

As you can see the majority are value investors. I also like the unhedged exposure to Asia with TAAM and the infrastructure in RARE.


----------



## robusta

*PORTFOLIO UPDATE*
Closed positions

Bought:
7,142   x TSM   @   $0.66   = $4713.72    (25/07/11)
546      x  MCE  @   $6.95   = $3797.70    (25/07/11)
385      x FGE   @    $5.37  = $2067.45     (26/07/11)
291      x FGE   @    $5.34  = $1553.94     (27/07/11)
29,524  x SOO  @    $0.105 = $3100.02     (01/08/11)
7407    x ZGL    @   $0.43   = $3185.01    (05/08/11)
386      x  MCE  @   $5.15   = $1995.62     (08/08/11)
288      x MIN    @   $9.96   =  $2686.48    (08/08/11)
809      x MCE   @   $4.20   =  $3397.80    (24/08/11)
85        xBHP     @  $35.60 =  $3026.00     (22/09/11)

Subtotal            $29,523.74

Sold:
7407 x ZGL     @$0.40  = $2962.80
7142 x TSM    @$0.49 = $3499.58
29,524x SOO  @ $0.10=$2952.40
85     xBHP     @$34.93=$2969.05
288  xMIN      @$10.18=$2931.84
1741 xMCE    @$3.50 = $6093.50
676 x FGE      @ $4.53 = $3062.28

Subtotal           $24,474.45

Capital gains (losses) ($5049.29)
Interest Paid / bank charges    = $1564.51
Brokerage Paid =  $458.50
Dividends Received = $453.16      Franking credit = $194.21

Tax Position, Capital Gains (Losses), Brokerage, Interest
($6,619.14) loss   Franking credits = $194.21

Open Positions
Bought:
853      x CCP     @    $4.48    =    $3821.44        26/07/11
1115    x MTU    @   $2.62      =    $2921.30        08/08/11
520      x CCP     @    $3.83    =    $1991.60        08/08/11
65       x COH     @   $45.85    =    $2980.25        30/09/11
1373   xOKN       @ $1.455      =    $1997.72        23/11/11
 837x MCE          @ $3.08       =    $2577.96        21/12/11
185 x QBE          @ $10.81      =    $1999.85        13/01/12
916 x PRV          @ $0.655      =    $599.98          25/01/12                                                                                                                                      
Subtotal      $ 18,890.10

Current Portfolio Position

1373     x  CCP      @ $4.55  = $6247.15
65        x COH       @$60.23  =$3914.95
837    x   MCE     @ $3.05    = $2552.85
1115    x MTU       @ $3.22  = $3590.30
1373  x OKN         @$1.21   = $1661.33
916    x PRV         @$0.665 = $609.14
185    x QBE         @$11.82 = $2186.70

Subtotal = $20,762.42


Total realised and unrealised loss -18.6% or - $4,746.82
Cash contributed $1050.00 ($50/week) from 26/01

Realised return on contributed equity -~ 730 %

Return on contributed equity             -~552%

Credit available $5354.13

Couple of small changes this month, bought two small holdings, QBE and PRV and increased my weekly donation to this portfolio from $40.00 to $50.00.

While happy about the market recovery on one hand, it is getting more difficult to find opportunities to invest, maybe the reporting season will throw up some interest.


----------



## robusta

*NEW INVESTMENT*

NVT - Navitas Limited

Bought 1023 @ $2.93 = $2997.39

Call me crazy if you like given NVT recent earnings downgrade and the rising A$ but I think NVT may be one of the few ASX listed companies with a sustainable competitive advantage.

Took me a while to understand the business and in the short term operating conditions may remain difficult but I will be shocked if EPS is not at least 3-4 times present levels in 10 years.

*PART INVESTMENT SOLD*

CCP - Credit Corp

Sold 520 @ $5.00 = $2600.00

To be honest I feel a bit foolish with this one. When I decided to buy NVT a couple of days ago (and placed low ball bid @ $2.820 thought it might be a good idea to take some profits on CCP and rebalance portfolio so I placed sell order @ $4.88 
Anywhoo totally missed the announcement this morning and my order was filled @$5.00 

CCP is still my largest holding - just.


----------



## Klogg

Robusta - loved your thread to date, a great read

Tell me, have you ever looked @ TGA? Could you please tell me your thoughts on this one if you have?


----------



## McLovin

robusta said:


> *NEW INVESTMENT*
> 
> NVT - Navitas Limited
> 
> Bought 1023 @ $2.93 = $2997.39
> 
> Call me crazy if you like given NVT recent earnings downgrade and the rising A$ but I think NVT may be one of the few ASX listed companies with a sustainable competitive advantage.




You crazy!

I said in the NVT thread that I like the company but flat earnings and a pe of ~13.5 put me off it. And in this market it's inherently possible that it falls to a 8-9x earnings.


----------



## robusta

Klogg said:


> Robusta - loved your thread to date, a great read
> 
> Tell me, have you ever looked @ TGA? Could you please tell me your thoughts on this one if you have?




Excellent company Klogg, hold some in my SMSF and still good value at the moment. Have been very close to buying some recently - just thought at the time better value elsewhere.


----------



## robusta

McLovin said:


> You crazy!
> 
> I said in the NVT thread that I like the company but flat earnings and a pe of ~13.5 put me off it. And in this market it's inherently possible that it falls to a 8-9x earnings.




I almost hope you are right McLovin, if the price drops that much I will buy more - if i still have capital available.

About the only think that bothers me with NVT is the recent acquisition - I think they paid too much, hopefully this will not be repeated.


----------



## Ves

robusta said:


> I almost hope you are right McLovin, if the price drops that much I will buy more - if i still have capital available.
> 
> About the only think that bothers me with NVT is the recent acquisition - I think they paid too much, hopefully this will not be repeated.



 If it makes you feel better I thought they were excellent value at $3.37 and $3.18. You cannot hope to pick the bottom every time. More than happy to keep averaging in at these prices over the next 6-12 months if it doesn't bounce. I am investing for very long term growth in cash flow, rather than capital growth however.


----------



## robusta

Ves said:


> If it makes you feel better I thought they were excellent value at $3.37 and $3.18. You cannot hope to pick the bottom every time. More than happy to keep averaging in at these prices over the next 6-12 months if it doesn't bounce. I am investing for very long term growth in cash flow, rather than capital growth however.




Agree it is often luck to pick the bottom but finding good companies at a fair price should help things to workout OK IMO.

I am also looking for a long term passive income, as the dividends rise so should the capital growth.


----------



## Ves

robusta said:


> I am also looking for a long term passive income, as the dividends rise so should the capital growth.



 I agree; but I came to the conclusion that I cannot retire without a reliable income stream (and unless you are trading proficiently) capital growth will not always be inevitable across risk assets. Capital growth is a bonus, I do not use it to justify my investment. For me personally, this makes it easier to "switch off" short-term market movements. Of course I was slightly peeved that NVT fell 30 cents below my purchase price not fifteen minutes after my order was fulfilled, but I hope to never have to sell it in the long-term, unless the company loses their competitive advantages and profitably for a prolonged period. I want to be in a position where I do not have to draw down my capital to live. Dividends ensure that you still maintain control of the same amount of assets.


----------



## robusta

*NEW INVESTMENT*

MEF - Merricks Capital Special Opportunity Fund Limited

Bought 2976 x MEF @ $0.63 = $1874.88

MEF is the old Fat Prophets LIC (FAT) with a big change of direction.

"Merricks Capital Special Opportunity Fund Limited (Fund) is listed and trades on the Australian Stock Exchange (MEF-ASX). The current market capitalisation of the Listed Fund is approximately $30m. 
The Fund was renamed as the Merricks Capital Special Opportunity Fund at the AGM on 15 November 2010. 
On 1 August 2010, Merricks Capital commenced acting as the Manager of the Fund. On 1 October 2010, Merricks Capital and Independent Directors of the Fund announced the new investment mandate of the Fund. 
The Fund focuses on having between 3 to 10 investments at any given time. 
Generally the Fund focuses on making investments with small to mid-cap Australian listed companies. 
The types of investments that the Fund targets are: 
Obtaining a strategic stake in a desired small to medium sized listed company via placement of new securities or acquisition of securities. 
Construction of unlisted convertible securities offering equity-type returns but with debt security characteristics. 
Combining with other investors to acquire significant stakes in companies with a view to actively agitating for change, which could release hidden value to all shareholders. 
Investments that reward the provision of liquidity. 
The Fund seeks to make investments that will allow the Fund to pay regular and consistent dividends. 
The Fund is able to target sectors of the market where there is a shortage of competitors. 
The Fund also has the ability to co-invest in opportunities with Merricks Capital’s other funds."

MEF had a NTA backing in Jan @ $1.01 / share. The portfolio is very concentrated as of Janruary announcement.

50.93% ASX listed SRQ - Straits Resources, a copper, and gold producer and explorer with some decent assets - DYOR but well worth a look.

29.9 % digital harbour mezzanine loan, a loan to developer of a property leased by Melbourne Water (should underpin a $0.04 a share dividend for the 2012 financial year.

12.99% ASX listed IEF - ING Real Estate Entertainment Funds, looking for a good yield here

3.96% ACL - Alchamea

1.92% MPO - Molopo Energy

With a MER ~ 2.5% and liking most of the assets in the portfolio and a decent 37% discount to NTA I thought this neglected stock deserved a home in my portfolio.


----------



## Klogg

Robusta - Just to be clear, I ask the following because I value your opinion, not because I'm trying to be critical:

As far as I understand, MEF are an investment fund, specifically in the small to mid cap stocks (that's what I gather from their site). They simply use the equity of shareholders, and possibly some debt, to invest in equities.
Based on this, I ask:
- How accurate is their 'book-value', given their assets are made up of the share prices of other companies (i.e. very unreliable book value)? Unless of course they value this differently...
- And the main question - What makes you believe that they would invest funds better than you can? 

This is me asking this from the very little understanding I have on investing in an investment fund. If you have additional insight into it, please do tell. 

Also worth noting that I have stayed away from all finance companies thus far, as I don't understand them.


----------



## robusta

Klogg said:


> Robusta - Just to be clear, I ask the following because I value your opinion, not because I'm trying to be critical:
> 
> As far as I understand, MEF are an investment fund, specifically in the small to mid cap stocks (that's what I gather from their site). They simply use the equity of shareholders, and possibly some debt, to invest in equities.
> Based on this, I ask:
> - How accurate is their 'book-value', given their assets are made up of the share prices of other companies (i.e. very unreliable book value)? Unless of course they value this differently... .




The book value is equal to the market value of the holdings but if you think the portfoilo is made up of fair valued or even better undervalued shares buying at a discount to book value should be OK.



Klogg said:


> - And the main question - What makes you believe that they would invest funds better than you can?




Could they do worse??

The main reason I like these guys is their strategy on investing in 'special situations' a area I am interested in but have very limited knowledge on.



Klogg said:


> This is me asking this from the very little understanding I have on investing in an investment fund. If you have additional insight into it, please do tell.
> 
> Also worth noting that I have stayed away from all finance companies thus far, as I don't understand them.




Listed Investment Comapanies have a lot of different risk profiles but IMO buying a select few with a decent investment strategy and a nice discount to NTA is a small price to pay for paying a few % management expense ratio and a loss of control of investment decisions.


----------



## So_Cynical

robusta said:


> Listed Investment Comapanies have a lot of different risk profiles but IMO buying a select few with a decent investment strategy and a nice discount to NTA is a small price to pay for paying a few % management expense ratio and a loss of control of investment decisions.




I reckon there is room in every well rounded portfolio for a LIC or 2


----------



## skc

robusta said:


> Listed Investment Comapanies have a lot of different risk profiles but IMO buying a select few with a decent investment strategy and a nice discount to NTA is a small price to pay for paying a few % management expense ratio and a loss of control of investment decisions.




The small MER% (which btw 2.5% is not small as a MER) adds up and compounds over time. My rule of thumb is to take 8-10x MER as the discount. So a MER-adjusted NTA is 75-80% of the reported NTA. The rest of the discount probably pays for loss of control, lack of liquidity in MEF and discount involved with exiting a position (i.e. hard to sell a lot of stock all at the last price).

LICs do have a place if you want some diversification and if you back people with track records that beat the market year after year (net of fees). Not so sure how many LICs actually tick those boxes.


----------



## Klogg

Awesome - thanks all.

And sorry for the thread hijack... Now back to Robusta's investments, lol.


----------



## odds-on

Great comments from all regarding LIC. In my pursuit of lazy but profitable investing(mainly because my individual stock pickings are dreadful), would I be far off saying that if I followed a investing strategy of purchasing LIC's at substantial discount to NTA and then sold them when they are at just close to NTA I would probably do reasonably well - especially in the volatile markets. I suppose I could hold half a dozen LIC's or so in the portfolio.

The asx prints out the discount to NTA of the LIC every month. I am pretty sure after every a few months an investor will know which to follow closely.

Thoughts? 

Cheers

Oddson


----------



## craft

What would be the catalyst for the discount in NTA to change?

If the discount doesn’t change then you just get the underlying performance. If a discount to NTA exists then that’s probably because the underlying performance is not flash.

If you’re going to pay somebody else a management fee to invest your your money, why wouldn’t you just then forget about investing, leave it up to them and enjoy your time in some other pursuit?

Unless there is a catalyst to eliminate the discount or you are a passive investor LIC's don't make much sense to me.


----------



## skc

craft said:


> What would be the catalyst for the discount in NTA to change?
> 
> If the discount doesn’t change then you just get the underlying performance. If a discount to NTA exists then that’s probably because the underlying performance is not flash.
> 
> If you’re going to pay somebody else a management fee to invest your your money, why wouldn’t you just then forget about investing, leave it up to them and enjoy your time in some other pursuit?
> 
> Unless there is a catalyst to eliminate the discount or you are a passive investor LIC's don't make much sense to me.




Best catalysts are full takeover, partial/full windup or material change in portfolio companies. Recent examples like CTN/CCQ and OCP. But for a concentrated portfolio of mostly listed assets the appeal may not be that high for a suitor.


----------



## craft

skc said:


> Best catalysts are full takeover, partial/full windup or material change in portfolio companies. Recent examples like CTN/CCQ and OCP. But for a concentrated portfolio of mostly listed assets the appeal may not be that high for a suitor.





This comment is not referred to you SKC. Just a general comment.

Hope for a catalyst to come along because a large discount exists is not the same as a catalyst. A lot of opportunity cost can be incurred as you sit and hope. MEF only has a MV of 17Million why don't we band together and buy it? Or maybe we should just invert that thought. Why wouldn't we buy it.


----------



## skc

craft said:


> This comment is not referred to you SKC. Just a general comment.
> 
> Hope for a catalyst to come along because a large discount exists is not the same as a catalyst. A lot of opportunity cost can be incurred as you sit and hope. MEF only has a MV of 17Million why don't we band together and buy it? Or maybe we should just invert that thought. Why wouldn't we buy it.




I understand Craft... I wasn't responding just adding to your general comment.

There are plenty of companies that I think of buying on the ASX if I had enough money... and yes most of them along the lines of takeover, fire the board and sell the assets. I am sure it's been done before. 

Now just need to find that $17m...


----------



## odds-on

Craft and Skc, thanks for the feedback, my investing education continues! I had not thought about it in that much detail. I just liked the idea of buying a portfolio of shares at significant discount (say 30%) and waiting for the good times to return - this is the reason I bought CTN at 89.5 cents in Dec 2011. 

Back to the individual stock picking.

Cheers

Oddson.


----------



## robusta

skc said:


> The small MER% (which btw 2.5% is not small as a MER) adds up and compounds over time. My rule of thumb is to take 8-10x MER as the discount. So a MER-adjusted NTA is 75-80% of the reported NTA. The rest of the discount probably pays for loss of control, lack of liquidity in MEF and discount involved with exiting a position (i.e. hard to sell a lot of stock all at the last price).




I do like this rule of thumb, had not thought of looking at it like that.

The way I look at is to look at the expected return on capital and to subtract the MER from that.



skc said:


> LICs do have a place if you want some diversification and if you back people with track records that beat the market year after year (net of fees). Not so sure how many LICs actually tick those boxes.




Probably not many, MEF has not been going long at all.



craft said:


> What would be the catalyst for the discount in NTA to change?
> 
> If the discount doesn’t change then you just get the underlying performance. If a discount to NTA exists then that’s probably because the underlying performance is not flash.
> 
> If you’re going to pay somebody else a management fee to invest your your money, why wouldn’t you just then forget about investing, leave it up to them and enjoy your time in some other pursuit?
> 
> Unless there is a catalyst to eliminate the discount or you are a passive investor LIC's don't make much sense to me.




The way I look at it and please bear with me as there are many 'if's' in the following..

If I could buy a LIC with a NTA ~ $1.00 for around $0.63 and I liked the underlying investments and strategy and expected a return of 10% plus compounded (would be dissatisfied with less than 15%) then my return would be ~$0.10-$0.15 per share less the MER of ~$0.025 per share for a nice healthy return of ~$0.085-$0.125 on my $0.63 investment.

Well that was the plan......

Any how you can find todays 1/2 year results here.

http://www.asx.com.au/asx/research/companyInfo.do?by=asxCode&asxCode=MEF#headlines

On a not unrelated topic I do like SRQ they also reported today.

http://www.asx.com.au/asx/research/companyInfo.do?by=asxCode&asxCode=srq#headlines


----------



## odds-on

Robusta,

You might like the article in the link below:-

http://www.gurufocus.com/news/164428/should-you-wait-for-a-crash--or-buy-todays-best-bargain

I found it thought provoking - do you think Geoff is right?

Cheers

Oddson.


----------



## craft

odds-on said:


> Robusta,
> 
> You might like the article in the link below:-
> 
> http://www.gurufocus.com/news/164428/should-you-wait-for-a-crash--or-buy-todays-best-bargain
> 
> I found it thought provoking - do you think Geoff is right?
> 
> Cheers
> 
> Oddson.




Oddson

There’s is a lot in that article worthy of discussion - probably deserves its own thread.


----------



## Ves

odds-on said:


> Robusta,
> 
> You might like the article in the link below:-
> 
> http://www.gurufocus.com/news/164428/should-you-wait-for-a-crash--or-buy-todays-best-bargain
> 
> I found it thought provoking - do you think Geoff is right?
> 
> Cheers
> 
> Oddson.



 Thanks for this link Oddson. Being a relatively inexperienced investor, the mindset and the discipline to stick to a plan is important to me. 

My reading list also expanded! Cheers


----------



## robusta

odds-on said:


> Robusta,
> 
> You might like the article in the link below:-
> 
> http://www.gurufocus.com/news/164428/should-you-wait-for-a-crash--or-buy-todays-best-bargain
> 
> I found it thought provoking - do you think Geoff is right?
> 
> Cheers
> 
> Oddson.





Very good article,  he also has some good podcasts. I am still getting my head around net net investing however I guess my recent interest in lic's is my attempt to have a few Ben Graham type holdings to balance the rest of the portfolio.


----------



## robusta

PORTFOLIO UPDATE[/B]
Closed positions

Bought:
7,142   x TSM   @   $0.66   = $4713.72    (25/07/11)
546      x  MCE  @   $6.95   = $3797.70    (25/07/11)
385      x FGE   @    $5.37  = $2067.45     (26/07/11)
291      x FGE   @    $5.34  = $1553.94     (27/07/11)
29,524  x SOO  @    $0.105 = $3100.02     (01/08/11)
7407    x ZGL    @   $0.43   = $3185.01    (05/08/11)
386      x  MCE  @   $5.15   = $1995.62     (08/08/11)
288      x MIN    @   $9.96   =  $2686.48    (08/08/11)
809      x MCE   @   $4.20   =  $3397.80    (24/08/11)
85        xBHP     @  $35.60 =  $3026.00     (22/09/11)
520      x CCP   @   $3.83  =  $1991.60      (08/08/11)

Subtotal            $31,515.34

Sold:
7407 x ZGL     @$0.40  = $2962.80
7142 x TSM    @$0.49 = $3499.58
29,524x SOO  @ $0.10=$2952.40
85     xBHP     @$34.93=$2969.05
288  xMIN      @$10.18=$2931.84
1741 xMCE    @$3.50 = $6093.50
676 x FGE      @ $4.53 = $3062.28 
520  x CCP     @ $5.00 = $2600.00

Subtotal           $27,074.45

Capital gains (losses) ($4440.89)
Interest Paid / bank charges    = $1721.57
Brokerage Paid =  $518.35
Dividends Received = $549.32     Franking credit = $235.42

Tax Position, Capital Gains (Losses), Brokerage, Interest
($6,131.49) loss   Franking credits = $235.42

Open Positions
Bought:
853      x CCP     @    $4.48    =    $3821.44        26/07/11
1115    x MTU    @   $2.62      =    $2921.30        08/08/11
65       x COH     @   $45.85    =    $2980.25        30/09/11
1373   xOKN       @ $1.455      =    $1997.72        23/11/11
 837x MCE          @ $3.08       =    $2577.96        21/12/11
185 x QBE          @ $10.81      =    $1999.85        13/01/12
916 x PRV          @ $0.655      =    $599.98          25/01/12                                                                                                                                      
1023 x NVT        @ $2.93        =    $2997.39        02/02/12           
2976 x MEF        @ $0.63        =    $1874.88        27/02/12
Subtotal      $ 21,770.77

Current Portfolio Position

853     x  CCP      @ $5.84  = $4981.52
65        x COH       @$60.23  =$3804.45
837    x   MCE     @ $3.05    = $2753.73
2976 x MEF          @ $0.63 = $1845.12
1115    x MTU       @ $3.22  = $3757.55
1023 x NVT          @ $2.93 = $3283.83
1373  x OKN         @$1.21   = $1592.68
916    x PRV         @$0.665 = $572.50
185    x QBE         @$11.82 = $2266.25


Subtotal = $24,857.63


Total realised and unrealized loss -14.2% or - $3,086.86

Cash contributed $1250.00 ($50/week) from 26/01

Realized return on contributed equity -~ 591 %

Return on contributed equity             -~347%

Credit available $3,211.17


----------



## robusta

Well reporting season is over so I thought a review of the portfolio would be in order.

*Core Positions*;
Cochlear

Despite the current short selling it seems the sky was not falling in on COH, I expect to hold this one for a long time with increased dividends every year and one day a sp over $100.00

Navitas          

Normally I like companies with the ability to retain equity and generate a good return on it so the 100% payout ratio of NVT threw me for a while but then I realized they could grow with little or no capital required.
Would not like to see more companies acquired at a premium however.

M2 Telecommunications

This little growth machine deserves some time to pay me a whole heap of dividends.
*Wannabe Core Positions*;
Creditcorp

My best performer to date, however growth will be constrained in the Aus market and it has hit my estimate of IV.

QBE

Bought after the profit downgrade I really like the insurance side of the business but have some doubts about the long term performance of the float as it is invested predominately in bonds.
Will be looking to partake in the spp.

Matrix Composites

Will give this cyclical business a chance to live up to bright outlook. 

*The Rest*;
Oakton Group

I still think this is a decent business, however it is hard to see a catalyst for a short term gain. I could not think of a worse time to sell with the recent change to the indicie

Merrick Capital Special opportunity Fund

No dividend I am fine with however I will be looking for a decent market beating return on NTA in the future.

Premium Investors

Same as above.


----------



## robusta

Looking at the short history of this portfolio it seems I am having trouble curbing the desire to "do something". The strategy as outlined earlier was to have a low turnover portfolio of high quality growing companies bought at bought at reasonable prices. I see no reason to change this strategy but given my impatience I propose a additional strategy to be employed as a core and satellite approach.

Satellite Portfolio.

I propose to use available funds to take advantage of "special situations" like ; takeovers, workouts, arbitrage, trading at discount to NTA, SPP at attractive prices...

Sounds a bit vague I know but I will flesh in more details as opportunities arise. (this allows me to make it up - and learn as I go along)

I will not set a specific % or dollar amount to this strategy as my first preference will be to build the core portfolio holdings.

*Opportunity *

QBE has a SPP @ $10.70 with investors on the register allowed to apply for $1000, $2000, $5000, $10000 or $15000 worth of shares. The offer closes 26/3. QBE shares closed today at $12.46

I understand the offer will be oversubscribed and scaled back and given I only have a bit over $3000 of available capital I am in a position of looking to sell something to apply for $5000 worth of shares in the SPP.

*INVESTMENT SOLD*

MCE - Matrix Composites 837 @ $3.66 = $3063.42

Looking at the numbers of MCE it seems I have been guilty of speculation of a bright future, with little evidence that this will occur. I would consider buying again if the price is attractive enough but taking a little back of the previous losses now seems prudent to me.


----------



## RandR

robusta said:


> Looking at the short history of this portfolio it seems I am having trouble curbing the desire to "do something". The strategy as outlined earlier was to have a low turnover portfolio of high quality growing companies bought at bought at reasonable prices. I see no reason to change this strategy but given my impatience I propose a additional strategy to be employed as a core and satellite approach.




Do you think your being more proactive then you need to be Robusta ? I understand the trouble your having, I was in a similar rush to make decisions quickly and allocated capital alot faster then I probably should have.


----------



## robusta

RandR said:


> Do you think your being more proactive then you need to be Robusta ? I understand the trouble your having, I was in a similar rush to make decisions quickly and allocated capital alot faster then I probably should have.




You are probably right but it would be nice to take advantage of opportunity as it arises and make a decent return in the process


----------



## Ves

I have started a monthly capital averaging system. I worked out what money I wish to invest from my monthly income and deploy it into the market in the week that my salary is paid.  This stops me from "grabbing at bargains" (you know, when a price suddenly starts to decrease and it looks "cheap") and making emotional decisions on the run (in the process buying more than planned). The rest of the month is used to decide what looks like an attractive purchase (and if nothing, the capital can be carried forward to the next month and so on). My goal is to focus on great companies (it always has been, but if you become emotional about prices the lines can blur).

Of course I still can't stop myself from looking at the market at least once a day. I would probably need a job that doesn't require me to sit at a computer all day to break that habit.


----------



## suhm

qbe turned out well thus far. Kudos I got that one wrong. Wouldn't you just apply for the full 15k, this is a leveraged account as you say and the LVR for qbe is quite generous for most providers or was the leverage just the LOC and having a fixed amount.


----------



## McLovin

robusta said:


> *Opportunity *
> 
> QBE has a SPP @ $10.70 with investors on the register allowed to apply for $1000, $2000, $5000, $10000 or $15000 worth of shares. The offer closes 26/3. QBE shares closed today at $12.46
> 
> I understand the offer will be oversubscribed and scaled back and given I only have a bit over $3000 of available capital I am in a position of looking to sell something to apply for $5000 worth of shares in the SPP.




What chance do you think you have of getting your full $5k? I get the feeling this is going to get massively scaled back, especially given the recent SP movement. I'm applying for the full $15k but I doubt I'll get it.


----------



## YELNATS

McLovin said:


> What chance do you think you have of getting your full $5k? I get the feeling this is going to get massively scaled back, especially given the recent SP movement. I'm applying for the full $15k but I doubt I'll get it.




There will be a huge scaleback. 

They only want to raise $150 million under the retail offer having already raised $450 million from institutional investors. 

Nonetheless I will be applying for the maximum $15,000 of shares given there's a near 20% profit to be made based on today's share price.


----------



## Klogg

Ves said:


> I have started a monthly capital averaging system. I worked out what money I wish to invest from my monthly income and deploy it into the market in the week that my salary is paid.  This stops me from "grabbing at bargains" (you know, when a price suddenly starts to decrease and it looks "cheap") and making emotional decisions on the run (in the process buying more than planned). The rest of the month is used to decide what looks like an attractive purchase (and if nothing, the capital can be carried forward to the next month and so on). My goal is to focus on great companies (it always has been, but if you become emotional about prices the lines can blur).
> 
> Of course I still can't stop myself from looking at the market at least once a day. I would probably need a job that doesn't require me to sit at a computer all day to break that habit.




I just experienced the same habit and recently stopped it.

I found just because I had a good 40-50k to use, I wanted to use it. Now I find myself a LOT more cautious with it, buying only what I'm sure of.
Given you invest @ each payday (or nearby), do you find yourself always able to find something of value, or are you forced to wait it out sometimes?


----------



## robusta

suhm said:


> qbe turned out well thus far. Kudos I got that one wrong. Wouldn't you just apply for the full 15k, this is a leveraged account as you say and the LVR for qbe is quite generous for most providers or was the leverage just the LOC and having a fixed amount.




No margin on this account - just a LOC, with not much more to spend.



McLovin said:


> What chance do you think you have of getting your full $5k? I get the feeling this is going to get massively scaled back, especially given the recent SP movement. I'm applying for the full $15k but I doubt I'll get it.




Buckleys and none of getting the full entitlement IMO, will be lucky to get 25%




YELNATS said:


> There will be a huge scaleback.
> 
> They only want to raise $150 million under the retail offer having already raised $450 million from institutional investors.
> 
> Nonetheless I will be applying for the maximum $15,000 of shares given there's a near 20% profit to be made based on today's share price.




Not sure what this line means in the offer document

"Please keep this potential scale back in mind when deciding how much to apply for as it will impact how many shares you receive. For example if you hold $1000 of shares, apply for $15000 and QBE scales back the offer, you may only receive $1000 of shares (or less)....."

So with $2380 of shares applying for $5000 and scaled back say 60-80% this means... - guess I will have to wait and see.


----------



## robusta

Ves said:


> I have started a monthly capital averaging system. I worked out what money I wish to invest from my monthly income and deploy it into the market in the week that my salary is paid.  This stops me from "grabbing at bargains" (you know, when a price suddenly starts to decrease and it looks "cheap") and making emotional decisions on the run (in the process buying more than planned). The rest of the month is used to decide what looks like an attractive purchase (and if nothing, the capital can be carried forward to the next month and so on). My goal is to focus on great companies (it always has been, but if you become emotional about prices the lines can blur).




I have been rereading The Intelligent Investor and this technique is listed as one of the most profitable if you have the discipline and funds to apply to it. I imagine by looking at the most attractive stocks and doubling up in subsequent periods will only add to the returns.



Ves said:


> Of course I still can't stop myself from looking at the market at least once a day. I would probably need a job that doesn't require me to sit at a computer all day to break that habit.




Once a day!!! I may be borderline obsessive compulsive, looking around twenty times a day It is probably remarkable this portfolio has not had more turnover considering.


----------



## Ves

robusta said:


> Once a day!!! I may be borderline obsessive compulsive, looking around twenty times a day It is probably remarkable this portfolio has not had more turnover considering.



 Haha, I did use 'at least' in that sentence. If I have time at work, which I generally do, I usually check it once an hour. Which is silly, because it doesn't achieve anything (other than cause wonder in how the trading ranges of certain stocks bounce around). I guess you do get a rough feel for how they move after a while. Keep in mind that I process SMSF accounts and returns for a living, so I often need to confirm prices and such on share or finance related sites and can catch a sneaky look at the market in the process. Often clients will have a stock that I have never really heard of... so I might use that as an excuse to look it up.


----------



## Ves

Klogg said:


> I just experienced the same habit and recently stopped it.
> 
> I found just because I had a good 40-50k to use, I wanted to use it. Now I find myself a LOT more cautious with it, buying only what I'm sure of.
> Given you invest @ each payday (or nearby), do you find yourself always able to find something of value, or are you forced to wait it out sometimes?



Not as yet, there are still stocks that I follow that haven't moved a great deal either way (or they are range trading). I would suspect that if the market kept going up and earnings did not keep up for the next few years that it would be harder to narrow down stocks.


----------



## LifeChoices

I was just looking over this thread again from the start and couldn't help wondering where you'ld be today had you not done all this, dare I say "emotional", buying and selling. 

I'm sure you would have been better off, had you just held on to your portfolio when you were fully loaded on 8/8/11. Sure there were some duds in there but the rest of them looked like fairly good investments: FGE, MTU, CCP & MIN for example

Obviously always easy in hindsight. But sometimes I look at my trading and think... maybe if I had just held my original parcel I could have saved myself all that stress and would have probably been better off.


----------



## robusta

LifeChoices said:


> I was just looking over this thread again from the start and couldn't help wondering where you'ld be today had you not done all this, dare I say "emotional", buying and selling.




Emotional? I am not sure how to answer that one, impatient, impetuous, stupid maybe but I am not sure I feel emotional about my decisions.



LifeChoices said:


> I'm sure you would have been better off, had you just held on to your portfolio when you were fully loaded on 8/8/11. Sure there were some duds in there but the rest of them looked like fairly good investments: FGE, MTU, CCP & MIN for example




You are probably right I think I may have to workout the difference, but would have to  use 9/8 to include MIN.

I still hold MTU and CCP and do not regret selling MIN, FGE however is the business I made a mistake selling. 



LifeChoices said:


> Obviously always easy in hindsight. But sometimes I look at my trading and think... maybe if I had just held my original parcel I could have saved myself all that stress and would have probably been better off.


----------



## LifeChoices

robusta said:


> Emotional? I am not sure how to answer that one, impatient, impetuous, stupid maybe but I am not sure I feel emotional about my decisions.




Emotion is the right word. You bang on about how great a company X is from a fundamental point of view, then a week or so later it's all changed and you sell it.

I think you can argue that being impatient and impetuous are strongly related to emotions. You can learn to recognize and control your emotions. 

I can only gather from your reply that if the decisions you are making are not emotional - you must be......

Well - you said it.


----------



## robusta

Well I guess I should have a look at how that portfolio from the 9/8 would look like now.



robusta said:


> Current Portfolio Position
> 
> 1373   x  CCP    @ $3.83  = $5244.86
> 676    x   FGE    @ $4.44  = $3001.44
> 932    x   MCE   @ $5.30  = $4839.60
> 288    x   MIN    @ $11.04 = $3179.52
> 1115   x   MTU   @ $2.63  = $2932.45
> 29524 x   SOO   @ $0.086 = $2539.06
> 7142  x   TSM    @ $.55   = $3928.10
> 
> *Current Market Value:
> $25,765.03*
> 
> Total realised and unrealised loss -13.89% or - $4,155.41
> 
> Cash contributed $40.00
> Credit available $119.56
> 
> All ords @  25/07/11  4603.80 @ 8/8 4096.7  = -11.01%
> 
> Well that is it, fully invested after two and a half weeks, I am surprised stocks fell to these prices so quickly.




1373   x  CCP    @ $5.90  = $8100.70
676    x   FGE    @ $6.52  = $4407.52
932    x   MCE   @ $3.57  = $3337.95
288    x   MIN    @ $12.83 = $3179.52
1115   x   MTU   @ $3.31  = $3695.04
29524 x   SOO   @ $0.05 = $1476.2
7142  x   TSM    @ $.36   = $2571.12

Total $26768.05

Interesting, if I could assume costs would be roughly equal between the portfolios (less brokerage cancelled out by higher interest charges) I am fairly happy with the relative performance of the actual portfolio, I have more capital available and am slightly better off albeit in open positions.

Here is a Buffett quote I am thinking of getting engraved on my forehead.

"An investor needs to do very few things right as long as he or she avoids big mistakes"

Here are my open positions and the % gain/loss if I could for a moment ignore brokerage and interest costs.

853     x  CCP      @ $5.90  = $5032.70     +31.7%
65        x COH       @$57.25  =$3721.25    +24.86%
2976 x MEF          @ $0.63 = $1874.88      0.0%
1115    x MTU       @ $3.31  = $3690.65    +26.34%
1023 x NVT          @ $3.38 = $3457.74     +15.36%
1373  x OKN         @$1.19   = $1633.87    -18.21%
916    x PRV         @$0.67 = $513.72        +2.29%  
185    x QBE         @$13.14 = $2430.90    +21.55%
Total $22455.71

For a total gain of $3262.91 or 17%

Looks OK until you look at the capital loss of a bit under $4000.00 plus brokerage and interest paid giving a total cost of a bit under $6000.00

Does anyone want to go over again where I think the errors were made with MCE, TSM... and position sizing?

Anyhow as Forrest said "stupid is as stupid does"


----------



## McLovin

robusta said:


> Does anyone want to go over again where I think the errors were made with MCE, TSM... and position sizing?




TSM isn't that bad, IMO. Despite retail in Australia and the UK being extremely difficult and the high AUD impacting their UK business and the transition to the new lease model, the numbers are pretty good. It's one that needs time. They're also well positioned to take advantage of growth in the internet in Australia.


----------



## So_Cynical

robusta said:


> ((27th-July-2011)*NEW INVESTMENT*
> 
> FGE - Forge Group
> 
> 385   x FGE  @ $5.37 = $2067.45   (26/07/11)
> 291   x FGE  @ $5.34 = $1553.94   (27/07/11)




-----------



robusta said:


> (30th-November-2011) *INVESTMENT SOLD*
> 
> Sold 676 x FGE @ $4.53




robusta i hate to do this to you but its for your own good and the good of a great thread....4 and a half months later and its clear you sold at almost the wrong time.

Like all non trend following investors you were faced with a choice of sell (take the loss), hold (see what happens) or buy more (average down) and you decided to sell....The Green dot shows your buy, the red dot shows your sell decision and the rest of the chart indicates just what a poor decision that was....buy a few more and believe in your self and your a million miles in front.
~


----------



## robusta

McLovin said:


> TSM isn't that bad, IMO. Despite retail in Australia and the UK being extremely difficult and the high AUD impacting their UK business and the transition to the new lease model, the numbers are pretty good. It's one that needs time. They're also well positioned to take advantage of growth in the internet in Australia.




Yep I agree they are back on my radar, I think the main drama for me before was to pay to much for expected growth that was never going to continue from the past in a straight line.


So_Cynical said:


> -----------
> 
> 
> 
> robusta i hate to do this to you but its for your own good and the good of a great thread....4 months later and its clear you sold at almost the wrong time.
> 
> Like all non trend following investors you were faced with a choice of sell (take the loss), hold (see what happens) or buy more (average down) and you decided to sell....The Green dot shows your buy, the red dot shows your sell decision and the rest of the chart indicates just what a poor decision that was....buy a few more and believe in your self and your a million miles in front.
> ~




Oh I remember this ok and I think you pointed out at the time you thought I was selling a few positions too early. I have no excuse, at the time I was listening to the market and expecting to pick up FGE again in the future at a cheaper price. Definitely not part of the strategy and a expensive lesson.


----------



## So_Cynical

robusta said:


> Yep I agree they are back on my radar, I think the main drama for me before was to pay to much for expected growth that was never going to continue from the past in a straight line.
> 
> 
> Oh I remember this ok and I think you pointed out at the time you thought I was selling a few positions too early. I have no excuse, *at the time I was listening to the market* and expecting to pick up FGE again in the future at a cheaper price. Definitely not part of the strategy and a expensive lesson.




And the key point here is not don't listen to the market...the point is COMPLETELY IGNORE IT.

The market is a million Muppet's behaving like a million Muppet's....fact is there are* no genuine believers* selling FGE at under $5


----------



## robusta

So_Cynical said:


> And the key point here is not don't listen to the market...the point is COMPLETELY IGNORE IT.
> 
> The market is a million Muppet's behaving like a million Muppet's....fact is there are* no genuine believers* selling FGE at under $5




Good point. Not sure if I can ever completely ignore the market but the ability to take advantage of it when securities are undervalued would be nice.

This brings us nicely to MCE, at about the same time I was arrogant enough to believe the market was wrong as I averaged down into this stock.

Think I may need to find some balance there.

Maybe just maybe my wife is not the only one in our house who experiences emotion.


----------



## robusta

LifeChoices said:


> Emotion is the right word. You bang on about how great a company X is from a fundamental point of view, then a week or so later it's all changed and you sell it.




I could be mistaken but there is a chance I may have made some errors is stock selection, entry and exit  points.

The main errors IMO have either been by not executing my strategy properly or from deviating from my strategy but I digress... the question was about emotion.



LifeChoices said:


> I think you can argue that being impatient and impetuous are strongly related to emotions. You can learn to recognize and control your emotions.




Well you have given me pause for thought. Often I hear the main emotions that drive participants in the market are fear and greed.

Will have to put my hand up for greed, I waited a long time for the LOC to be activated and threw money into a falling market not wanting to miss out on the great prices on offer.

Also arrogance would have to be on the list as it has taken me a long time to admit mistakes.

Fear?? not so much, even when I sold FGE I was not afraid of holding a loosing position but looking to crystalize a loss and pick up more at a cheaper price

You posted this back in September and as dark and dire as things seemed I was not  hurt'n or depressed but rather confident that lessons would be learnt and positive returns will come - this has not changed.



LifeChoices said:


> You must be hurt'n buddy. Are you sure about this margin loan thingo you are rabbiting on about? I know you also have MCE. It's like some stockbroker in China read this post and said to himself  "I'm going to stick the boot into Robusta."
> 
> FGE today is selling for $4.780 I'm sure it's undervalued,  but atm that's all anyone is willing to pay for it. What a difference a couple of months make?
> 
> Do you use stops at all Robusta?




So after that revelation the best way forward would be to work with my overconfidence and greed and resolve to seek higher quality businesses at a larger margin of safety.



LifeChoices said:


> I can only gather from your reply that if the decisions you are making are not emotional - you must be......




Greedy, overconfident, impatient, arrogant, Mum will be so proud.
Think I might spent the afternoon on the couch - watching F1



LifeChoices said:


> Well - you said it.




Yes I did, note how i have tried to throw some non-stupid sounding words in this post, maybe we should add insecure?


----------



## Intrinsic Value

robusta said:


> I could be mistaken but there is a chance I may have made some errors is stock selection, entry and exit  points.
> 
> The main errors IMO have either been by not executing my strategy properly or from deviating from my strategy but I digress... the question was about emotion.
> 
> 
> 
> Well you have given me pause for thought. Often I hear the main emotions that drive participants in the market are fear and greed.
> 
> Will have to put my hand up for greed, I waited a long time for the LOC to be activated and threw money into a falling market not wanting to miss out on the great prices on offer.
> 
> Also arrogance would have to be on the list as it has taken me a long time to admit mistakes.
> 
> Fear?? not so much, even when I sold FGE I was not afraid of holding a loosing position but looking to crystalize a loss and pick up more at a cheaper price
> 
> You posted this back in September and as dark and dire as things seemed I was not  hurt'n or depressed but rather confident that lessons would be learnt and positive returns will come - this has not changed.
> 
> 
> 
> So after that revelation the best way forward would be to work with my overconfidence and greed and resolve to seek higher quality businesses at a larger margin of safety.
> 
> 
> 
> Greedy, overconfident, impatient, arrogant, Mum will be so proud.
> Think I might spent the afternoon on the couch - watching F1
> 
> 
> 
> Yes I did, note how i have tried to throw some non-stupid sounding words in this post, maybe we should add insecure?




Yes selling out FGE was a big mistake. I think you need to be a little more patient. Nothing fundamentally changed with FGE when it sunk down to around 4 dollars so it was still a good buy at that level.

On the other hand MCE did change with cash flow problems and now not making a profit at all. MCE is still a bit of a risky stock but if you believe all the bad news is out of the way then it could rise quite  nicely again.

BTW I hold both stocks. I am a little behind on MCE but way ahead on Fge.


----------



## kermit345

I hold both as well. Am behind on MCE but infront on FGE. I'll probably look to exit MCE sooner rather than later, but I see FGE as having more long-term potential depending on china cooling off and if new mines / expansions are eased off and by how much.

Not sure if you've looked at this one much but MML seems like a good fit for a fundamentals portfolio. Issues being that weather has hampered their production a bit recently as well as expansion and some distant earthquake tremors. Also single asset risk and political risk cannot be ignored.

Those are mainly the risks, but upside equates to a growth plan expanding production 4 fold, very low cost producer, zero debt and high returns (besides this financial year). They've had a price shock recently due to another reduction in production estimate for this financial year but if you can ignore some of that noise there is huge potential for significant re-rating in 12-18 months time. Thought i'd just spike your interest if anything else as MML under $5 gets into the value territory for sure.


----------



## robusta

Thank-you for that Kermit.  MML does seem to have a lot of upside but I have trouble coming up with a fair value for this type of company. The price of gold has appreciated very quickly in recent times and I am not sure on how to evaluate the company specific risks.

For me one for the watch list until I can learn more.


----------



## kermit345

MML is quite easy to value IF and its a big IF the gold price was stable. Obviously this is not the case and that means their sales have the possibility to vary widely. As its a single mine operating so one stream of cash flows that should make it fairly easy to come to some sort of valuation. I posted some share price estimates based on the gold price and what Price/Cashflow ratio the company trades on in the MML thread if your interested.

Due to their margins even if the gold price drops to say $1,300 /oz there is no reason MML still can push through the $10 mark in 2 years time pending their expansion plans.

Anyway just an idea  I'm refining my approach a little at the moment and will probably start a thread similar to this robusta so stay tuned


----------



## robusta

kermit345 said:


> MML is quite easy to value IF and its a big IF the gold price was stable. Obviously this is not the case and that means their sales have the possibility to vary widely. As its a single mine operating so one stream of cash flows that should make it fairly easy to come to some sort of valuation. I posted some share price estimates based on the gold price and what Price/Cashflow ratio the company trades on in the MML thread if your interested.




Thank you, I can see your point now, MML does deserve a closer look.



kermit345 said:


> Due to their margins even if the gold price drops to say $1,300 /oz there is no reason MML still can push through the $10 mark in 2 years time pending their expansion plans.
> 
> Anyway just an idea  I'm refining my approach a little at the moment and will probably start a thread similar to this robusta so stay tuned




I would highly recommend this, a thread like this will help you in your investment journey IMO, good luck.


----------



## Ves

kermit345 said:


> As its a single mine operating so one stream of cash flows that should make it fairly easy to come to some sort of valuation.




What about mine life and diminishing returns on the existing mine? The need to fund a new mine further down the track? I stay away from these companies for this reason; they're so hard to put a reasonable value on, and that is before you factor in freak events like weather, mine strikes, political risk, economic and commodity cycles etc etc and of course the underlying commodity price fluctuations.

I guess this is where the whole 'circle of competence' idea comes in; you really have to become in expert in the industry to put a good valuation on anything.


----------



## So_Cynical

kermit345 said:


> Due to their margins even if the gold price drops to say $1,300 /oz there is no reason MML still can push through the $10 mark in 2 years time pending their expansion plans.




If POG fell back to 1300 rapidly i can assure you that the SP of all gold producers would fall substantially more in percentage terms than the POG...a fast fall to 1300 would signal to many the end of the decade long gold bull resulting the the SP of all gold producers getting smashed.


----------



## kermit345

Agree that their price would drop dramatically in the panic of the gold price drop, but MML's margin's are so great that some value would need to be recognised at some stage.

Ves, I totally agree with you on all fronts which is why i'd only look at investing in MML on a 2-3 year basis and review constantly along the way. Follow them through their expansion and once they are producing 2-400k p.a. start looking for an exit unless mine life or further opportunities can be provided.

Agreed their are risks, but in general with risk comes the potential for greater reward. I'm personally comfortable with investing in MML due to its high growth potential in the near term, others may not be and thats fine, totally up to the discretion of all individuals and on the whole i agree with a lot of the points made in previous two posts .


----------



## tinhat

It would be nice if we discussed MML in the MML thread. Regarding risk, position size accordingly. I own four times more CBA than MML and twice as much BHP than MML and I consider myself to be very long in MML.


----------



## robusta

PORTFOLIO UPDATE[/B]

Thought I might try a bit more of a report style;

Sold MCE last month for $485.45 more than I paid, so this brings my capital losses down to $3955.43, paid $144.68 to the bank in interest to bring this total to $1866.25 plus another $19.95 to the broker for a grand sum of $538.30

On the positive side $124.25 in dividends bought the income up to $673.57

So that is a loss of $5686.41

On the bright side the open positions are looking a little better

Open Positions
Bought:
853      x CCP     @    $4.48    =    $3821.44        26/07/11
1115    x MTU    @   $2.62      =    $2921.30        08/08/11
65       x COH     @   $45.85    =    $2980.25        30/09/11
1373   xOKN       @ $1.455      =    $1997.72        23/11/11
185 x QBE          @ $10.81      =    $1999.85        13/01/12
916 x PRV          @ $0.655      =    $599.98          25/01/12                                                                                                                                      
1023 x NVT        @ $2.93        =    $2997.39        02/02/12           
2976 x MEF        @ $0.63        =    $1874.88        27/02/12
Subtotal      $ 19,192.81

Current Portfolio Position

853     x  CCP      @ $5.85  = $4990.05
65        x COH       @$60.90  =$4023.50
2976 x MEF          @ $0.63 = $1874.88
1115    x MTU       @ $3.63  = $4036.30
1023 x NVT          @ $3.55 = $3631.65
1373  x OKN         @$1.255   = $1723.12
916    x PRV         @$0.625 = $572.50
185    x QBE         @$14.17 = $2621.45


Subtotal = $23,473.45

Cash contributed $1450.00 ($50/week) from 26/01

This brings the total loss considering the open positions to $1405.77


----------



## robusta

Have been busy with other stuff lately, too tired to update percentage returns in the last post but just realized some time last week the portfolio had some positive equity.:bier:

Will not get too carried away however as I had to put in $1450 of my own money to get to this position.

Looking forward to April will be selling QBE if prices are anywhere neat current levels after my minuscule allocation in the SPP.

COH has been a minor source of irritation as the price has fluctuated between $62 and $56, this should be a long term hold for me but I would consider buying more around $55. Hope the short sellers get the upper hand soon and I can add some more to this portfolio.


----------



## Ves

robusta said:


> Looking forward to April will be selling QBE if prices are anywhere neat current levels after my minuscule allocation in the SPP.



 Not fussed with it's long term prospects, I take it?

edit: also, if COH is a core position, does paying 5-10% more per share matter too much over the long-term? If you think they can repeat their past performance to some degree you should try this exercise.  Go back to their listing and allocate capital equally each year at their peak price.  Then do the same with their low price.  See how much it varies over 10 or 20 years.  You will be surprised.


----------



## robusta

Ves said:


> Not fussed with it's long term prospects, I take it?
> 
> edit: also, if COH is a core position, does paying 5-10% more per share matter too much over the long-term? If you think they can repeat their past performance to some degree you should try this exercise.  Go back to their listing and allocate capital equally each year at their peak price.  Then do the same with their low price.  See how much it varies over 10 or 20 years.  You will be surprised.




I like the prospects of the insurance side of QBE but have a negative view of returns generated by the float invested in bonds.

The trouble with any business including a quality one like COH is to work out a fair price you are prepared to pay, and be patient for your opportunity to come. A lesson that has cost me some money to learn.


----------



## craft

Ves said:


> also, if COH is a core position, does paying 5-10% more per share matter too much over the long-term? If you think they can repeat their past performance to some degree you should try this exercise.  Go back to their listing and allocate capital equally each year at their peak price.  Then do the same with their low price.  See how much it varies over 10 or 20 years.  You will be surprised.




Seriously insightful observation.

Its a bit late at night to be doing pivot tables - but I make it:

Luckiest person in the world who got the best close price every year for a 10K injection into COH would now have 1.05 Million in stock. 

Unluckiest person who picked the worst close price every year would now have 745K in stock.

Person who never pulled the trigger still has their 180K.

Dividends and Interest excluded.


----------



## odds-on

craft said:


> Seriously insightful observation.
> 
> Its a bit late at night to be doing pivot tables - but I make it:
> 
> Luckiest person in the world who got the best close price every year for a 10K injection into COH would now have 1.05 Million in stock.
> 
> Unluckiest person who picked the worst close price every year would now have 745K in stock.
> 
> Person who never pulled the trigger still has their 180K.
> 
> Dividends and Interest excluded.




I have an observation regarding COH. The EPS (TTM) is 1.27 AUD according to ft.com. If one knows the future earnings with certainty then a DCF is the correct way to value the business. I will therefore perform a reverse 2 stage DCF on the current share price. (Assumptions EPS = FCF per share, Stage 2 annual growth rate = 3% and discount rate = 12.4%)

If Stage 1= 10 years then the current share price of $60.74 implies an earnings growth rate of approx 24% for the next 10 years. Or if Stage 1 = 20 years then the current share price of $60.74 implies an earnings growth rate of 15.7% 

Priced for absolute perfection. Are there thousands of investors who are able to read annual reports, do internet research, read magazines, industry analysis and business analysis so that they have that much confidence in the future earnings of COH? Me thinks not. If I was to buy at that price I would need to have spent minimum twenty years working at the company/industry and a have controlling influence to even get close to feeling comfortable that I am  ‘investing’ rather than ‘speculating’. At some point COH will fail, who knows when but it will fail.

Cheers

Oddson


----------



## skc

odds-on said:


> At some point COH will fail, who knows when but it will fail.




It doesn't have to fail. It only needs the market stop pricing it for perfection and holders are in for a big reduction in their capital.

IMHO that is happening now, even though there's still a lot of past aura associated with the stock.


----------



## odds-on

skc said:


> It doesn't have to fail. It only needs the market stop pricing it for perfection and holders are in for a big reduction in their capital.
> 
> IMHO that is happening now, even though there's still a lot of past aura associated with the stock.




Agree. Risk is permanent loss of capital.

My mind has been working overtime about 'market darlings'. I keep asking myself is it easier to calculate the likelihood of a market darling failing/PE rerate than it is to calculate the likelihood of a 'market darling' performing to perfection for the next 20 years? 

Cheers

Oddson


----------



## craft

odds-on said:


> I have an observation regarding COH. The EPS (TTM) is 1.27 AUD according to ft.com. If one knows the future earnings with certainty then a DCF is the correct way to value the business. I will therefore perform a reverse 2 stage DCF on the current share price. (Assumptions EPS = FCF per share, Stage 2 annual growth rate = 3% and discount rate = 12.4%)
> 
> If Stage 1= 10 years then the current share price of $60.74 implies an earnings growth rate of approx 24% for the next 10 years. Or if Stage 1 = 20 years then the current share price of $60.74 implies an earnings growth rate of 15.7%
> 
> Priced for absolute perfection. Are there thousands of investors who are able to read annual reports, do internet research, read magazines, industry analysis and business analysis so that they have that much confidence in the future earnings of COH? Me thinks not. If I was to buy at that price I would need to have spent minimum twenty years working at the company/industry and a have controlling influence to even get close to feeling comfortable that I am  ‘investing’ rather than ‘speculating’. At some point COH will fail, who knows when but it will fail.
> 
> Cheers
> 
> Oddson






skc said:


> It doesn't have to fail. It only needs the market stop pricing it for perfection and holders are in for a big reduction in their capital.
> 
> IMHO that is happening now, even though there's still a lot of past aura associated with the stock.




I agree totally with this. COH is a good company but far too rich for my blood looking forward.

V's exercise was interesting. But the assumption was that you saw the value back in the early days. The exercise was about how much you finesse the entry at the risk of blowing the opportunity.

The opportunity for COH in the next 18 years is not the same as the last 18 years. But the lesson is applicable as we consider current opportunities.


----------



## craft

odds-on said:


> Agree. Risk is permanent loss of capital.
> 
> My mind has been working overtime about 'market darlings'. I keep asking myself is it easier to calculate the likelihood of a market darling failing/PE rerate than it is to calculate the likelihood of a 'market darling' performing to perfection for the next 20 years?
> 
> Cheers
> 
> Oddson




For what it’s worth there is a mountain of academic research suggesting that buying and rebalancing to the lowest percentile P/E (or low P/B or P/S or whatever metric you want to use to show cheapness) will result in higher returns over extended time frames.
The converse is that the highest percentiles underperform. Ie on average market darlings don’t live up to their hype.


----------



## odds-on

craft said:


> I agree totally with this. COH is a good company but far too rich for my blood looking forward.
> 
> V's exercise was interesting. But the assumption was that you saw the value back in the early days. The exercise was about how much you finesse the entry at the risk of blowing the opportunity.
> 
> The opportunity for COH in the next 18 years is not the same as the last 18 years. But the lesson is applicable as we consider current opportunities.




I went onto the COH website

http://www.cochlear.com/corporate/financial-history

According to the 2002 data, investors were believing in the growth rate back then, my reverse 2 stage DCF indicates purchasing at 34.05 an investor would be making the assumption for 10 years = 23% growth and 20 year = 15%. However the EPS growth rate has been 17% over the period. I wonder how many investors bought and held COH for 10 years following a purchase in 2002.

Cheers

Oddson


----------



## odds-on

craft said:


> For what it’s worth there is a mountain of academic research suggesting that buying and rebalancing to the lowest percentile P/E (or low P/B or P/S or whatever metric you want to use to show cheapness) will result in higher returns over extended time frames.
> The converse is that the highest percentiles underperform. Ie on average market darlings don’t live up to their hype.




Agree, that is my research to date. However for the fail/rerate to happen you need a catalyst to happen. I suspect it turns into a game of patience, looking for the correct combination of extreme overvaluation by the market and a high likelihood of fail/rerate/business hiccup.


----------



## craft

odds-on said:


> Agree, that is my research to date. However for the fail/rerate to happen you need a catalyst to happen. I suspect it turns into a game of patience, looking for the correct combination of extreme overvaluation by the market and a high likelihood of fail/rerate/business hiccup.




As well as all the academic research that points to mean reversion valuations metrics in the longer term there is another fairly strong theme coming out, that is, that in the shorter term momentum plays a role in market behaviour. Ie it takes time for the big trends to roll over and gravitate back towards a valuation peg. Your catalyst point is the key.


----------



## odds-on

craft said:


> As well as all the academic research that points to mean reversion valuations metrics in the longer term there is another fairly strong theme coming out, that is, that in the shorter term momentum plays a role in market behaviour. Ie it takes time for the big trends to roll over and gravitate back towards a valuation peg. Your catalyst point is the key.




This is getting far too complicated, I am going to take up golf as a hobby instead


----------



## McLovin

odds-on said:


> I have an observation regarding COH. The EPS (TTM) is 1.27 AUD according to ft.com.




Do you not think that perhaps it would be wiser to use a period that doesn't include the product recall?


----------



## odds-on

McLovin said:


> Do you not think that perhaps it would be wiser to use a period that doesn't include the product recall?




Good point. Using 2011 data, purchase at $72 implies 10 year growth at 13.5% or 20 year growth at 10%. Priced for perfection not absolute perfection


----------



## McLovin

odds-on said:


> Good point. Using 2011 data, purchase at $72 implies 10 year growth at 13.5% or 20 year growth at 10%. Priced for perfection not absolute perfection




Which is why I purchased at around $50. 

The growth in this is going to come from APAC and LATAM.


----------



## craft

McLovin said:


> Which is why I purchased at around $50.
> 
> The growth in this is going to come from APAC and LATAM.




I was looking for $40 before even thinking about accumulating.

Oh well, wrong again – but there’s no rush.


----------



## McLovin

craft said:


> I was looking for $40 before even thinking about accumulating.
> 
> Oh well, wrong again – but there’s no rush.




Funny, I'm in that position with NVT, and look at it run!


----------



## kermit345

craft said:


> For what it’s worth there is a mountain of academic research suggesting that buying and rebalancing to the lowest percentile P/E (or low P/B or P/S or whatever metric you want to use to show cheapness) will result in higher returns over extended time frames.
> The converse is that the highest percentiles underperform. Ie on average market darlings don’t live up to their hype.




craft, recently had the opportunity through work to go listen to some nobel prize winners in finance talk about what they have studied in relation to shares and managed funds. The basic gist of it is that value stocks and small cap stocks outperform the broader market over an extended period of time. They don't necessarily outperform at the same time but in general they do at some point (Value outperformance is gradual and takes time, small cap outperformance comes in spits and purts and happens quickly).

If you look at this in the most basic sense then you can see how it can hold true. In terms of value, it's not often a company will remain 'undiscovered' if they have no issues, are growing cashflow and carry a P/E of 6,7,8. In terms of smaller caps, medium/bigger companies have to start somewhere and the ASX200 doesn't stay the same forever. Where do the new entrants come from to the ASX200/300 - smaller companies who have grown faster then the bigger companies and hence outperform.

I'm not saying don't invest in bigger companies, but you can understand how buying value in the smaller end provides a lot of reward potential (and of course greater risk) then buying these wonderfully ran businesses such as COH that are priced for perfection and already in the big end.

Note: When I say smaller companies, i'm not referring to micro's with $10mill market cap, I mean the $100 mill to $500 mill companies who have room to expand in our constrained Australian market.


----------



## odds-on

kermit345 said:


> craft, recently had the opportunity through work to go listen to some nobel prize winners in finance talk about what they have studied in relation to shares and managed funds. The basic gist of it is that value stocks and small cap stocks outperform the broader market over an extended period of time. They don't necessarily outperform at the same time but in general they do at some point (Value outperformance is gradual and takes time, small cap outperformance comes in spits and purts and happens quickly).
> 
> If you look at this in the most basic sense then you can see how it can hold true. In terms of value, it's not often a company will remain 'undiscovered' if they have no issues, are growing cashflow and carry a P/E of 6,7,8. In terms of smaller caps, medium/bigger companies have to start somewhere and the ASX200 doesn't stay the same forever. Where do the new entrants come from to the ASX200/300 - smaller companies who have grown faster then the bigger companies and hence outperform.
> 
> I'm not saying don't invest in bigger companies, but you can understand how buying value in the smaller end provides a lot of reward potential (and of course greater risk) then buying these wonderfully ran businesses such as COH that are priced for perfection and already in the big end.
> 
> Note: When I say smaller companies, i'm not referring to micro's with $10mill market cap, I mean the $100 mill to $500 mill companies who have room to expand in our constrained Australian market.




Kermit and Craft,

Setting up a simple screener to look for undervalued in the  $100million to $500million market cap range makes perfect sense to me, so much sense I have done it since I started investing. The problem lies with the execution of this type of strategy on the ASX. Firstly, to get any decent discount you need a business trading beneath a fair value range. Secondly, the business model also needs to lend itself to being valued simply, some business models are nigh on impossible to value due to the lack of earnings visibility. Once you remove any companies where earnings visibility is low you are left with less than a handful to select from –  the investor now has high exposure to valuation risk as well as business risk. However logic dictates that if you are going to hold only a few stocks you should hold only the very best business irrespective of market cap, the problem then lies in getting some meagre discount, serious patience is required.

IMO for the asx, active management of a few small caps is the only choice to keep the odds firmly in the investors favour. Except in times of market panic when the ASX will provide a smorgasbord.

I think about this a lot. Probably too much.

Cheers

Oddson.


----------



## kermit345

Oddson,

What you've suggested is essentially the basis i'm starting to work on now. My initial screen based on RoE, D/E, positive EPS and Cashflow PS leaves about 120 companies. Once I clean out the micro caps and stocks that have been incorrectly incorporated (maybe due to a capital raising inflating the metrics etc) i'm left with about 40 companies for further investigation. As you say once you look at earnings viability and reliability in this space your essentially left with between 5 and 20 companies that are ones you'd like to invest within.

As you've said, then obtaining these companies at some form of discount can be an issue in itself, however its still the preferred way i'd like to go about my investing as I can have a little peace of mind knowing the companies i'm in have their own established merits.

Sorry for basically hijacking your thread with our discussions robusta but I think your experience and journey gives some clarity to others and hopefully the discussion taking place at the moment does so for yourself too. I think there are opportunities out there and i've came to realise cashflow is king, particularly in this new world where extreme debt levels are now frowned upon and people have came to realise the debt fueled growth is simply not sustainable.


----------



## McLovin

odds-on said:


> Kermit and Craft,
> 
> Setting up a simple screener to look for undervalued in the  $100million to $500million market cap range makes perfect sense to me, so much sense I have done it since I started investing. The problem lies with the execution of this type of strategy on the ASX. Firstly, to get any decent discount you need a business trading beneath a fair value range. Secondly, the business model also needs to lend itself to being valued simply, some business models are nigh on impossible to value due to the lack of earnings visibility. Once you remove any companies where earnings visibility is low you are left with less than a handful to select from –  the investor now has high exposure to valuation risk as well as business risk. However logic dictates that if you are going to hold only a few stocks you should hold only the very best business irrespective of market cap, the problem then lies in getting some meagre discount, serious patience is required.
> 
> IMO for the asx, active management of a few small caps is the only choice to keep the odds firmly in the investors favour. Except in times of market panic when the ASX will provide a smorgasbord.
> 
> I think about this a lot. Probably too much.
> 
> Cheers
> 
> Oddson.




I agree. Running stock screeners and buying mechanically, I'd also prefer to be doing it with mid/large caps ($2b+). Whereas in Australia you are going to be dealing with a small handful of microcaps.  

I've been having a look at stock screeners, but I have decided against it in Australia. I just think, as you said, the market is too small. Have a look, for instance, at this:

http://www.oldschoolvalue.com/stock-screener/cash-return-on-invested-capital-croic-stock-screen.php

The companies being tossed up by that screener are overwhelmingly large cap. And the results are impressive.

Maybe I am being silly and not appreciating the mechanics of it but I'd sleep better knowing I was in large companies if I was using a mechanical system.


----------



## kermit345

Agree McLovin with the points you've raised, particularly still investing in mid/large due to Australia's market size. This is what i've recently addressed in my own investing procedure.

Essentially what I do is eliminate micro caps from my screener. After all my screening and research if i like a stock i will weight to it based on 3 factors, quality, value and size. This is how I plan to still invest in quality stocks no matter their size but weight my portfolio towards the small/mid end, depending obviously on their value (MOS) and quality.

Still working through everything on my front as its a process i'm still developing but this is essentially what i'll be aiming to use in some form.


----------



## robusta

*New investment*


Bought 972 x TGA Thorn Group @ $1.505

Would have probably liked a larger position size but as I have $5000 sitting in the QBE spp, will probably get 16 shares unless they scale me back more for applying with my SMSF as well.

Probably the first time I have felt nervous holding a stock as I would love to sell QBE at current prices but have to wait for the allocation unless I want to pay double brokerage.

A lot of interesting discussion on this thread lately, hopefully I will find some time over Easter to respond.


----------



## burglar

robusta said:


> ...  unless I want to pay double brokerage.
> 
> ...



Didn't know what to make of this thread, but had some spare time on my hands. 

It was an easy read. 

All the while I expected the detractors and naysayers to appear.
I guess you have parried them somehow!?

Just an observation if I may.

If any of your picks was to treble you would be looking good, would you not?


----------



## tech/a

craft said:


> As well as all the academic research that points to mean reversion valuations metrics in the longer term there is another fairly strong theme coming out, that is, that in the shorter term momentum plays a role in market behaviour. Ie it takes time for the big trends to roll over and gravitate back towards a valuation peg. Your catalyst point is the key.




I have a feeling this is nothing but rhetoric.
Which is prevalent in the field of trading.
Lots of head nodding in the direction of he
Who can sound more convincing!

Can you point to any papers which can support
Your discussion?

I'm not aware of any in the fundamental field that actually
Show longterm profitability on valuations.
Simply because most valuations vary.
Any analysis is subjective and must be walked forward.

Even this thread with som clearly experienced and knowledgable
Fundamental exponents find themselves in loss.


----------



## robusta

tech/a said:


> I'm not aware of any in the fundamental field that actually
> Show longterm profitability on valuations.
> Simply because most valuations vary.
> Any analysis is subjective and must be walked forward.




Graham, Dodd, Buffett, Munger, Templeton, Whitman, Ruane, Fisher, Pabrai, Tilson, Cundill, Greenblatt....?

None of these guys are 100% right but all get more right than wrong and have merket beating returns.


----------



## robusta

burglar said:


> Didn't know what to make of this thread, but had some spare time on my hands.
> 
> It was an easy read.




Cheers, lots of good contributors have taught me a lot.



burglar said:


> All the while I expected the detractors and naysayers to appear.
> I guess you have parried them somehow!?




Not so sure about parried them, more like agreed with the majority when my errors have been pointed out.




burglar said:


> Just an observation if I may.
> 
> If any of your picks was to treble you would be looking good, would you not?




Happy to wait, I thought I was looking good when $6000 + down


----------



## Ves

tech/a said:


> I'm not aware of any in the fundamental field that actually
> Show longterm profitability on valuations.
> Simply because most valuations vary.
> Any analysis is subjective and must be walked forward.



 Tech/a,  I don't think that valuation alone was the key to the best value-investors whose records have been published.  Most of them found a field of competence, honed their business skills within this field, and knew opportunity when it smacked them in the face. Much like your line of discussion in the property thread of late.


----------



## McLovin

Ves said:


> Tech/a,  I don't think that valuation alone was the key to the best value-investors whose records have been published.




But using a simple metric of value (P/E, P/B etc) will produce superior returns over the long term. Infact, from what I've read of tech/a's investing style in the property thread, he sounds like the archetypal value investor.

The most important part of value investing is the admission that your valuation will be wrong and applying an appropriate margin of safety. I laugh whenever I read a broker report that has XYZ as a buy because they have upgraded their valuation from $2 to $2.10 and the company's shares are trading at $2.05


----------



## craft

tech/a said:


> I have a feeling this is nothing but rhetoric.
> Which is prevalent in the field of trading.
> Lots of head nodding in the direction of he
> Who can sound more convincing!
> 
> Can you point to any papers which can support
> Your discussion?
> 
> I'm not aware of any in the fundamental field that actually
> Show longterm profitability on valuations.
> Simply because most valuations vary.
> Any analysis is subjective and must be walked forward.
> 
> Even this thread with som clearly experienced and knowledgable
> Fundamental exponents find themselves in loss.




Tech/a

Which reports do you want?  I suspect you are probably more interested in the Momentum ones than the Value ones.

http://scholar.google.com.au/scholar?hl=en&q=investment+Momentum+Jegadeesh+Titman&btnG=Search&as_sdt=0%2C5&as_ylo=&as_vis=0

Jegadeesh & Titman are the most cited papers on Momentum but there is heaps as you will see by the link. If you want valuation investing papers just type the search into the search – again there is heaps. 


I suspect you don’t really want the papers – but are trying to make some other point. If that point is that fundamentals can’t produce a positive probability – I disagree. 

If your point is that many Fundamental investors don’t know how to implement a positive probability then I do agree. (the same is true however of many TA traders)

The fundamentals are just one part of the whole investment system – one which needs a mathematical expectation of success. Most investors kill their F/A edge by their execution.

The academic papers are not so much the problem (though some are not robust and others have limiting non-real world assumptions to set boundaries for the study)  Usually the papers them self point out the assumptions and scope that may undermine their usefulness in real life but that often gets lost in the retelling.


----------



## Ves

McLovin said:


> But using a simple metric of value (P/E, P/B etc) will produce superior returns over the long term. Infact, from what I've read of tech/a's investing style in the property thread, he sounds like the archetypal value investor.



Pretty much - buying good businesses, with ROE that exceeds the long-run rate of return on equities, that are being sold on market price multiples that are well below long-term averages.  The biggest risk is that the short-term instability in earnings, or other challenges being faced by the business in their industry, that the market has priced in become a long-term reality.  You're betting against the grain; so you need both vision and conviction in your decision.  This strategy isn't popular, and the price often takes so long to gain traction because the short to medium term action is guided by those who want to make a quick buck. Impatience or fear in the face of adverse price action (in the short to medium term) often gets the best of most "value-investors" which is why the philosophy gets such a bad name at times.  

Do you think it is easier to pull the trigger when the whole market looks like it is on the verge of collapse (ie GFC) or a solitary (great) business is having short-term "growing pains" and the market has gone to town on its share price?


----------



## McLovin

Ves said:


> Do you think it is easier to pull the trigger when the whole market looks like it is on the verge of collapse (ie GFC) or a solitary (great) business is having short-term "growing pains" and the market has gone to town on its share price?




Hmmm...I think it depends. I'm not so arrogant that I always think I'm right (although, thankfully I'm right more often than wrong). When the market was tanking last year, even though _I_ thought it was all a bit overdone, I will admit reading everyone's doom and gloom got me thinking maybe I was completely wrong.

Then again sometimes businesses are really easy to understand and are completely oversold, then it's not so hard.


----------



## tech/a

CRAFT

I agree to a degree.
Fundamental and Technical traders by and large don't know how to apply their analysis
Into a long term profitable trading or investment model.

At best they will have a set of rules they "believe" will return them a profit over the long run. They don know for sure but their "plan" always makes sense and is logical
--- to them.

I see it here on ASF all the time.
There are a few here like me hat can tell from people's postings if they trade or not and of those if they are profitable .

Often names are quoted as irrefutable evidence that someone's beliefs are validated.
Infact many of those names have offices full of researchers and quants.
Where they all fall short----- is that even those ideas bandied around by many book Authors
Haven't been verified as profitable.

PAPERS

I've read quite a few those I have read are often in conclusive and based around ideas which
In many cases if shown to a trader who knows how to be consistently profitable--- would save the researchers a lot of time!

*What's needed is a combination of successful traders and academic research *

It's not easy to turn a Consistent profit ---- even though many would have you believe different.

A set of conditions which are ticked off---- if met---and lead to an investment doesn't guarantee profit.

So profitable practical application is indeed a rare insight.


----------



## craft

tech/a said:


> CRAFT
> 
> I agree to a degree.
> Fundamental and Technical traders by and large don't know how to apply their analysis
> Into a long term profitable trading or investment model.
> 
> At best they will have a set of rules they "believe" will return them a profit over the long run. They don know for sure but their "plan" always makes sense and is logical
> --- to them.
> 
> I see it here on ASF all the time.
> There are a few here like me hat can tell from people's postings if they trade or not and of those if they are profitable .
> 
> Often names are quoted as irrefutable evidence that someone's beliefs are validated.
> Infact many of those names have offices full of researchers and quants.
> Where they all fall short----- is that even those ideas bandied around by many book Authors
> Haven't been verified as profitable.
> 
> PAPERS
> 
> I've read quite a few those I have read are often in conclusive and based around ideas which
> In many cases if shown to a trader who knows how to be consistently profitable--- would save the researchers a lot of time!
> 
> *What's needed is a combination of successful traders and academic research *
> 
> It's not easy to turn a Consistent profit ---- even though many would have you believe different.
> 
> A set of conditions which are ticked off---- if met---and lead to an investment doesn't guarantee profit.
> 
> So profitable practical application is indeed a rare insight.




Tech/a 




> I agree to a degree.




you've got me beat, what exactly is it that you are agreeing to disagree about?



> There are a few here like me hat can tell from people's postings if they trade or not and of those if they are profitable .
> 
> Often names are quoted as irrefutable evidence that someone's beliefs are validated.
> Infact many of those names have offices full of researchers and quants.
> Where they all fall short----- is that even those ideas bandied around by many book Authors
> Haven't been verified as profitable.




I'm a bit thick - is this directed at me?


----------



## tech/a

craft said:


> Tech/a
> 
> 
> 
> 
> 
> 
> I suspect you don’t really want the papers – but are trying to make some other point. If that point is that fundamentals can’t produce a positive probability – I disagree.
> 
> ****If your point is that many Fundamental investors don’t know how to implement a positive probability then I do agree. (the same is true however of many TA traders)
> 
> The fundamentals are just one part of the whole investment system – one which needs a mathematical expectation of success. Most investors kill their F/A edge by their execution.
> 
> The academic papers are not so much the problem (though some are not robust and others have limiting non-real world assumptions to set boundaries for the study)  Usually the papers them self point out the assumptions and scope that may undermine their usefulness in real life but that often gets lost in the retelling.




I agree with all below****
The disagree is all traders not just fundamental traders.

My comment is directed at many traders I see commenting
Here at ASF. Ive made no judgement with yourself.


----------



## odds-on

Ves said:


> Impatience or fear in the face of adverse price action (in the short to medium term) often gets the best of most "value-investors" which is why the philosophy gets such a bad name at times.




I once read a comment made by Joel Greenblatt about his magic formula. He stated that investors got frustrated by the magic formula lacklustre performance over short time frames, this frustration led to investors "optimising" the portfolio which subsequently brought about worse returns than if they had just stuck with the magic formula for the full period so it can work the "magic". Brilliant.


----------



## McLovin

odds-on said:


> I once read a comment made by Joel Greenblatt about his magic formula. He stated that investors got frustrated by the magic formula lacklustre performance over short time frames, this frustration led to investors "optimising" the portfolio which subsequently brought about worse returns than if they had just stuck with the magic formula for the full period so it can work the "magic". Brilliant.




A lot of people do the same with net-nets. They bail as soon as the price moves up. As with almost all value strategies, it takes time.


----------



## tech/a

odds-on said:


> I once read a comment made by Joel Greenblatt about his magic formula. He stated that investors got frustrated by the magic formula lacklustre performance over short time frames, this frustration led to investors "optimising" the portfolio which subsequently brought about worse returns than if they had just stuck with the magic formula for the full period so it can work the "magic". Brilliant.




Not arguing that at all.
It mirrors every Financial Planners words to all of his clients in any downturn.

What I am saying though is this.
Show me some papers or research which clearly shows that "Value" investing when applied over x time period generates x return.

Its a widely accepted way of investing but Ive never seen *evidence* that the "theory" works-----regardless of time frame.

Infact Id argue that results would get worse over time---as "value" shifts ---along with its determination and definition. 

Why--Because its subjective.


----------



## McLovin

tech/a said:


> Its a widely accepted way of investing but Ive never seen *evidence* that the "theory" works-----regardless of time frame.




It won't work over any timeframe. It's a long term thing.

Anyway, here's some evidence.

http://www4.gsb.columbia.edu/null/V...e=filemgr.download&file_id=646514&showthumb=0


----------



## craft

tech/a said:


> I agree with all below****
> The disagree is all traders not just fundamental traders.
> 
> My comment is directed at many traders I see commenting
> Here at ASF. Ive made no judgement with yourself.




I will just highlight two words in the paragraph you seem to disagree with.



> If that point is that fundamentals can’t produce a *positive probability *– I disagree.




We probably don’t actually disagree here that much – once you realize I’m talking probability.

Yes a lot of FA is subjective but so too is discretionary TA, so I hope you will not be discrediting its potential on that basis.

Here’s a link for you to consider.

http://www.tilsonfunds.com/superinvestors.html


I haven’t got a lot of time right now but don’t go away – A lot of FA traders need to hear what you have to say about turning a positive probability into a successful system.

Hopefully we won’t get bogged down in TA vs. FA rubbish.


----------



## sinner

tech/a said:


> What I am saying though is this.
> Show me some papers or research which clearly shows that "Value" investing when applied over x time period generates x return..




There are a *lot* of those papers tech, before financial scientists 'accepted' momentum as real, almost all the papers written are using valuation *or* growth metrics with outsized returns that cannot be explained by transaction costs or liquidity alone...just like momentum.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=249455
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1302772

These days since 2008 'value' underperforms 'growth' AFAIK, but 'growth' is just another FA metric.


----------



## odds-on

Here is my 2c

The key to a mechanical value investing strategy is removing the human element! However I do not believe a mechanical value investing strategy can be applied on the ASX due to the size of the market, you need sufficient diversity in the portfolio to account for the occasional bomb. Therefore to be successful using FA only, IMO an investor is best to split FA into three opportunity streams to go fishing from:-

1.	Extraordinary business stream. The buy and hold forever. Holding timeframe decades.
2.	Long term survival stream. Mispricing by the market on the long term survival of the business. I would apply a discount rate of 12.4% and growth rate of 3% to ground any valuation to long term historic returns. Focus on operating history over last 5 - 10 years and product. Holding timeframe 1 – 2 years.
3.	Short term success stream. Relative valuation (still do not overpay though) and catalysts such as company announcements. Read Joel Greenblatts “How to be a stock market genius” cover to cover ten times. Holding timeframe: weeks/months.

I personally like 2. as it suits me. A 15-20% capital growth and a dividend or two is enough for me over the holding timeframe of a year.

How does an investor make approach 2. into a successful profitable system?

-	Holding period. 1 to 2 years. My research to date seems to indicate this is the ‘right’ holding period for this type of approach. 
-	Position size. The more discount to a conservative IV then the more you buy. Do not be afraid to take large postions.
-	Sell. Either on earnings downgrade or when it reaches a fair price. Personally I do not worry about +23% or +27%, the closer the price moves to a fair price the more risk I take on therefore I want to sell.
-	Active management. This is not buy and hold forever.

What do I think could improve the returns on 2?

-	Some form of momentum component. Moving averages or 52 week high. 
-	Some form of overall market valuation. Maybe screen for PE < Long term average PE. The more there is then the more likely undervalued the whole market is. 

As for probability, one day I was bored and created a spreadsheet to calculate the expected value of my portfolio then I realised it was pointless, approach 2. is not about +/- 1% and buying/selling a few shares here and there rebalancing portfolio it is about seeing a clear +30-50% upside. You do not need a spreadsheet for that! The only reason I even use a calculator these days is to use an average earnings formula that I got from a small business valuation book.

Cheers

Oddson.


----------



## odds-on

tech/a said:


> .
> 
> Infact Id argue that results would get worse over time---as "value" shifts ---along with its determination and definition.
> 
> Why--Because its subjective.




The shift that affects results is investors changing "strategy" every six months - defensive income, agressive growth, blah blah blah. Pointless. Stick to a plan.


----------



## kermit345

odds-on,

What you've described in point 2 is essentially what i'm aiming to achieve only with some slight variations. I'll probably vary my position size also based on company quality, so allocate more to high quality highly undervalued companies and less to the low quality and regularly underavlued companies - note low quality does not mean B&B or ABC Learning, low quality means relative to my mechanical filters etc. 

I'm also planning on allocating slightly more to smaller companies simply on the basis of higher risk / higher reward that I may be able to capture some additional returns on a 1-2 year basis.

I also have the same goals as you, securing some form of reasonable dividend while I wait for the fair value to be realised on a 1-2 year basis without chasing multi-baggers etc. Investing on a 1-2 year basis also means i achieve capital gains discount, and i can make sound investing decisions without contributing huge amounts of time to portfolio management and monitoring. I also believe a 1-2 year value investing style is optimal for me as forecasting earnings or economic events beyond 1-2 years is a mugs game and there is plenty of evidence that even majority of 'leading' economists in this country get it wrong on a regular basis, and quite often by a large margin.

While skc's approach is different in some ways and probably more like your weeks/months option odds-on you can see how successful he was simply buying undervalued companies with sound reasoning and a future catalyst which was likely to positively impact the share price.


----------



## tech/a

odds-on said:


> The shift that affects results is investors changing "strategy" every six months - defensive income, aggressive growth, blah blah blah. Pointless. Stick *to a plan*.




This is not an F/A V T/A post.
Quite the opposite.
The problem occurs in both Disciplines.

Many many have "Plans"

But hardly any have a plan that they *KNOW* will be long term profitable.
If a plan is flawed you can have as many conditions as you like---youll never be profitable.

Im on the search for evidence in Both fields that there are profitable plans.
I have many on the technical side.
Just looking for some on the Fundamental side.


----------



## kermit345

Tech/a

At a recent presentation I attended by a notable finance researcher they were looking at the merits of fund managers v the index and were pushing the index agenda. Obviously not really relevant to the current discussion but a point that stuck out was how to find the excellent fund managers and basically their studies showed that it took approximately 64 years to determine whether a fund manager has the ability and skill to consistently beat the index.

Obviously the situations are different for private investors v fund managers due to a number of convenents etc etc, but a lot of these fund managers label themselves as stock pickers or value investors. The guy giving the presentation went on to say how there are basically a handful of people who have beaten the market with their stock picking approach consistently over a number of years and have been producing these returns long enough to prove they can do so. 

Further to this my own take on the 'value' investing approach is that the time it takes to prove your method works (i.e. 64 years to be completely satisfied) is simply too long for any academic research to prove it works so far. However the presentation did go on to show that over time, value stocks and small stocks deliver greater returns compared to the wider market.

So without having the actual evidence infront of me to prove what i'm saying as I don't have access to the presentation or data they were working with, it seems to me that 'value' investing does have merit and can work. However it is exceptionally difficult to consistently pick the top winners in this field and hence have a positive expectancy unless your investing across a large number of such value stocks.

I can try find the articles if you'd like as I think I took home a folder from the presentation which had some references in it. Will have a look tonight and I hope what i've said has made some sense. Basically value investing works, but its hard to prove in the short or medium term, almost impossible to back-test and that 'value' can have a wide range of theoretical meanings with no measurements clearly defined as being directly related to 'value' (although the research I saw indicated that RoE and Book to Market were the best indicators of value).


----------



## skc

odds-on said:


> Therefore to be successful using FA only, IMO an investor is best to split FA into three opportunity streams to go fishing from:-
> 
> 1.	Extraordinary business stream. The buy and hold forever. Holding timeframe decades.
> 2.	Long term survival stream. Mispricing by the market on the long term survival of the business. I would apply a discount rate of 12.4% and growth rate of 3% to ground any valuation to long term historic returns. Focus on operating history over last 5 - 10 years and product. Holding timeframe 1 – 2 years.
> 3.	Short term success stream. Relative valuation (still do not overpay though) and catalysts such as company announcements. Read Joel Greenblatts “How to be a stock market genius” cover to cover ten times. Holding timeframe: weeks/months.




I like this categorisation.

Someone like Roger M is probably doing 3 (and not being very good at it) while trying to sell to others that he's doing 1.


----------



## odds-on

kermit345 said:


> odds-on,
> 
> What you've described in point 2 is essentially what i'm aiming to achieve only with some slight variations. I'll probably vary my position size also based on company quality, so allocate more to high quality highly undervalued companies and less to the low quality and regularly underavlued companies - note low quality does not mean B&B or ABC Learning, low quality means relative to my mechanical filters etc.
> 
> I'm also planning on allocating slightly more to smaller companies simply on the basis of higher risk / higher reward that I may be able to capture some additional returns on a 1-2 year basis.w
> 
> I also have the same goals as you, securing some form of reasonable dividend while I wait for the fair value to be realised on a 1-2 year basis without chasing multi-baggers etc. Investing on a 1-2 year basis also means i achieve capital gains discount, and i can make sound investing decisions without contributing huge amounts of time to portfolio management and monitoring. I also believe a 1-2 year value investing style is optimal for me as forecasting earnings or economic events beyond 1-2 years is a mugs game and there is plenty of evidence that even majority of 'leading' economists in this country get it wrong on a regular basis, and quite often by a large margin.
> 
> While skc's approach is different in some ways and probably more like your weeks/months option odds-on you can see how successful he was simply buying undervalued companies with sound reasoning and a future catalyst which was likely to positively impact the share price.




Kermit,

It will be interesting to see what you come up with. Everytime i run screens it picks up some ugly stocks but those ugly stocks have been paying dividends and increasing revenue for years. This makes me confident next year they will be doing the same and the market gives them a pat on the back and a 10% capital gain. 

Cheers

Oddson


----------



## robusta

odds-on said:


> The shift that affects results is investors changing "strategy" every six months - defensive income, agressive growth, blah blah blah. Pointless. Stick to a plan.




Could not agree more, constantly monitor and refine your strategy but give it a chance to work.


----------



## tech/a

robusta said:


> Could not agree more, constantly monitor and refine your strategy but give it a chance to work.




Robusta.
Your effort here has been excellent.
One I have followed.

I have seen a few efforts to trade Fundamentals and technicals profitably
All fun dies have ended in failure
I've seen many suceed in technical analysis.

The difference is that it's quantifiable.---technically.

I'm interested in what you think needs to be refined to improve a" plan?"

I have found that discretionary technical trading has similar results to value investing.
I've not seen discretionary trading traded profitably overtime.
I know you can as I do trade in a discretionary manner and profitable.


Again just making a statement that you need to keep refining your ideas walking forward is to me trading blind.
Surely if your putting your hard earned up to market RISK you'd want to KNOW
The way you trade is going to e long term profitable ---- not a work in progress!


----------



## McLovin

robusta said:


> Would have probably liked a larger position size but as I have $5000 sitting in the QBE spp, will probably get 16 shares unless they scale me back more for applying with my SMSF as well.




Looks like you'll be getting 4 shares.

http://asx.com.au/asxpdf/20120404/pdf/425gfg5gvd5vkk.pdf


----------



## robusta

tech/a said:


> Robusta.
> Your effort here has been excellent.
> One I have followed.




Cheers but I think you flatter me, there have been too many mistakes for me to get a pass IMO - so far



tech/a said:


> I have seen a few efforts to trade Fundamentals and technicals profitably
> All fun dies have ended in failure
> I've seen many suceed in technical analysis.




Sorry can't agree with that, I could name at least five on ASF that I think are successful and a much larger group of value fund managers.



tech/a said:


> The difference is that it's quantifiable.---technically.
> 
> I'm interested in what you think needs to be refined to improve a" plan?"




This is going to sound a bit vague but constant learning and a bit of tinkering around the edges. 

For example my first investment in MCE was predicated on the growth from the recent past continuing in a almost straight line - big mistake in a cyclical business, but at another price the volatility may be worth paying for.

QBE is another example, when I bought I liked the prospect of growing margins but on further research decided I did not like the expected returns from the float in the bond market.

I guess the plan stays basically the same but as I learn more about different businesses I am looking to buy better quality and/or at cheaper prices.



tech/a said:


> I have found that discretionary technical trading has similar results to value investing.
> I've not seen discretionary trading traded profitably overtime.
> I know you can as I do trade in a discretionary manner and profitable.




Maybe I have had a few too many beers, not sure I get your point, actually to tell the truth I don't know what discretionary technical trading is. 




tech/a said:


> Again just making a statement that you need to keep refining your ideas walking forward is to me trading blind.
> Surely if your putting your hard earned up to market RISK you'd want to KNOW
> The way you trade is going to e long term profitable ---- not a work in progress!




The difference IMO is this is not a mechanical system, and there are not many clear cut right or wrong entry or exit points, just a lifelong learning experience.

There is no way I will ever KNOW I have made the correct investment when I purchase part of a business but if I get more right than wrong (along with good position sizing) good results should follow.


----------



## robusta

McLovin said:


> Looks like you'll be getting 4 shares.
> 
> http://asx.com.au/asxpdf/20120404/pdf/425gfg5gvd5vkk.pdf




Yep fantastic, and paying interest on $5000 for a few weeks while CPU stuff around and I would have sold my parcel weeks ago probably closer to $14.50


----------



## McLovin

robusta said:


> Yep fantastic, and paying interest on $5000 for a few weeks while CPU stuff around and I would have sold my parcel weeks ago probably closer to $14.50




I'm holding onto QBE, they've turned the corner (not that I think they're going to $20 in a hurry).

They have taken their sweet time with this SPP.


----------



## robusta

McLovin said:


> I'm holding onto QBE, they've turned the corner (not that I think they're going to $20 in a hurry).
> 
> They have taken their sweet time with this SPP.




You could be right, the insurance margins look to be on the improve but for me ~$14.00 is a fair price I will still be selling.

Not sure if you look at international shares but have you had a look at Fairfax Financial, listed on the TSX, these guys have improving margins AND a fantastic record of good investment returns.


----------



## McLovin

robusta said:


> Not sure if you look at international shares but have you had a look at Fairfax Financial, listed on the TSX, these guys have improving margins AND a fantastic record of good investment returns.




Thanks, I'll check it out.


----------



## tech/a

robusta said:


> Cheers but I think you flatter me, there have been too many mistakes for me to get a pass IMO - so far
> 
> 
> 
> Sorry can't agree with that, I could name at least five on ASF that I think are successful and a much larger group of value fund managers.




Well I've been here a little while and not found 1
Fund managers I'm not interested in
I'm interested in what is achievable for Joe Average.




> This is going to sound a bit vague but constant learning and a bit of tinkering around the edges.
> 
> For example my first investment in MCE was predicated on the growth from the recent past continuing in a almost straight line - big mistake in a cyclical business, but at another price the volatility may be worth paying for.
> 
> QBE is another example, when I bought I liked the prospect of growing margins but on further research decided I did not like the expected returns from the float in the bond market.
> 
> I guess the plan stays basically the same but as I learn more about different businesses I am looking to buy better quality and/or at cheaper prices.




Unfortunately I think your whole life will be filled with tinkering and learning!




> Maybe I have had a few too many beers, not sure I get your point, actually to tell the truth I don't know what discretionary technical trading is.




Trading with discretionary decision making based upon chart analysis.
Similar to making discretionary decisions based upon valuation.




> The difference IMO is this is not a mechanical system, and there are not many clear right or wrong entry or exit points, just a lifelong learning experience.




I agree but
When do you know you've made a right decision?
When do you know you've made a wrong decision.
When do you know you've been right long enough
When do you know you've been wrong long enough.
When do you know you should have more capital on the trade.




> There is no way I will ever KNOW I have made the correct investment when I purchase part of a business but if I get more right than wrong (along with good position sizing) good results should follow.




You won't but you will know when your wrong
What you do and how long you stay wrong will determine your success or failure.

You know you don't have to be right that often
In fact you can be wrong 90% of the time and still be profitable.
You just have to know what to do when your wrong and what to do when your wrong!
First step is to know your right and or wrong within your model.
If you don't know either then you can't tinker with your outcome!

Think about it!
It's NOT ABOUT BEING RIGHT!

If it was---- your valuation would match everyone else's and you'd all ride the trade to " fair value" and everyone would be in Barbados.


----------



## robusta

tech/a said:


> Well I've been here a little while and not found 1
> Fund managers I'm not interested in
> I'm interested in what is achievable for Joe Average.




Just my opinion but I think there are a few value investors on ASF with market beating returns and without being arrogant I plan to join them in the future.



tech/a said:


> Unfortunately I think your whole life will be filled with tinkering and learning!




I sincerely hope so - I love tinkering and learning.



tech/a said:


> When do you know you've made a right decision?
> When do you know you've made a wrong decision.
> When do you know you've been right long enough
> When do you know you've been wrong long enough.
> When do you know you should have more capital on the trade.




Same way you know, the numbers will tell me, however a lot slower.

Sorry Tech/a I will have to get back to you on your last points tomorrow, I have another big week on at work.


----------



## craft

Mechanical systems have the advantage of being able to objectively quantify expectancy (so long as they havn't been optimized to historical data). A disciplined approach in following the rules that give rise to the positive expectancy means the law of large numbers will see you achieve that expectancy given enough repetitions.

A large problem with most of the academic papers on mechanical fundamental valuations is that to realise the positive return expectation found you must take ALL the stocks in the reference group (ie lowest decile or whatever) and you must repeat over successive years to engage the law of large numbers. If you don’t then you are no longer following the rules that found the positive expectation. Very few have the capital or the stomach to buy the entire bottom 10% of the market on any given metric.  It seems logical to cull out the dogs that have no competitive advantage or balance sheets ready to explode – but there is no study that objectively says this works.

I don’t employ any of the mechanical fundamental approaches from the academic papers but I have taken plenty on board from them about what sort of parameters can give rise to a positive return. But my approach is subjective because I can’t quantify it by back testing a set of rules. 

I am however convinced by all my research, logic and experience that I have a positive probability of excess return.

I subjectively select stocks based on my understanding of business fundamentals – no rules as such but a holistic understanding focussed on competitive advantage and balance sheet economics – blah – blah – blah. (Subjectivity based on experience.) I’ve been able to gain experience because I’ve been able to stay in the game.

The reason I stay in the game is because I adhere to the golden rules of what makes any investing or trading profitable which is simple mathematical expectation. Number of wins x win amount must outweigh no of losses x loss amount.

I diversify between 12 – 18 companies so that any one mistake doesn’t take me out of the game. 

I buy only companies that I regard as high quality with sustainable competitive advantages to protect their earning capacity (doesn’t mean they won’t be cyclical though)

I buy only when the price is less then I determine the future real cash flows to be which means if necessary I can ignore the market forever after my purchase and still make my required return. (as long as my analysis is right) 

As I ignore market prices I don’t get whipsawed due to market fluctuations.

If the assumptions I have done my valuations on turn out to be wrong - I get out immediately to minimise my downside.

Ignoring price means that theoretically I can lose 100% of my investment. However buying at a discount to valuation, actively watching business performance and acting when it doesn’t meet expectations means I limit my down side to much less.

Buying quality companies with competitive advantages and holding them over the long term means the potential for multi baggers and huge dividend returns on initial outlay.  This controlling the down side and being exposed to the best upside my judgement can find results in winners being much larger then losses.

I certainly get some wrong but experienced FA iand the absence of market price whipsawing also produces a high win %. Put the two together and you’ve got the highest expectancy that I know how to produce.

The downside – The positive probability that produces the FA edge is subjective so I’m going to get hurt if I lose it, before I know I have lost it. I watch my equity curves closely for an indication.

Buying with a margin of safety offers some limited protection against a starting draw down – however positions that have moved closer to fair value are subject to whatever drawdown the market may wish to throw at you. Only having 12-18 selectively picked stocks means your equity curve won’t mimic the index though it’s not going to be that different because you are not going to cash for protection.  When everything goes to the dogs and correlates then a 50% mark to market drawdown could easily occur whilst this approach is still working.  My equity channel width is around 50%. Don’t underestimate this point. Losing half of 100k may not change your life if you’re young. Losing half of 10 Million still leaves you pretty well off. Losing half of 1 Million that you need to live off for the rest of your life is a disaster which will Inevitably see you give up.

Subjective fundamental investing produces for me the highest expectancy that I can find – but it is not the easiest approach because the foundation of the positive return is subjective and the equity curve is not what you would call smooth. I know no way of smoothing the mark to market equity curve without negating my FA edge. 

I love analysing businesses and I love the freedom of the passive income that the dividends provide, I think what I have described is my best path to wealth creation, however I at times have run a systematic TA momentum approach on some of my funds to smooth my equity curve or utilise funds when I can’t find anything to buy at the right price.

Hmmm this post has got rather long – not sure I should even hit the submit button as I have dribbled on so much – hopefully somebody will find something useful if they have read this far.

Sorry Robusta for posting this on your thread but it is in response to the discussion of the last few days on this thread.


----------



## burglar

craft said:


> ...
> 
> Sorry Robusta for posting this on your thread but it is in response to the discussion of the last few days on this thread.




Rule #6: Never say "You're Sorry." It's a sign of weakness.[11]


----------



## McLovin

Great post, again, craft.

I don't think I've come away from one of your posts without something to think about.


----------



## kermit345

craft, your first 2-3 paragraphs are almost identical to the research I have infront of me at the moment. Essentially there is a value and small cap return premium available in the market but to receive it you have to weight entirely to these two areas of the market across a number of stocks which would be very capital intensive and require many hours per week to administer.

For those interest the following are the returns quoted by the research for given periods based on value or small cap weightings.

Australian Stocks - 1980-2010
Australian Value Index - 20.40% annual return
S&P 500 Index - 14.43% annual return
Australian Growth Index - 10.71% annual return

US Large Cap - 1927-2010
US Large Value - 14.03%
S&P 500 Index - 11.88%
US Large Growth - 11.35%

US Small Cap - 1927-2010
US Small Value - 19.17%
US Small Growth - 13.95%

Emerging Markets 1989-2010
Emerging Value - 25.01%
Emerging market Index - 19.46%
Emerging Growth - 17.05%

Now obviously this depends on their metrics of 'value' and 'small' which are not on the slide. Essentially Large-Small is based on market cap and Value-Growth is based on Book to Market according to whats written in the other slides. PM me if your interested in the article that supports the above.

I'm basically mixing and matching a lot of what people have talked about on here and tweaking as I go along much like robusta.

I'm taking a semi-mechanical approach although I think my metrics may be a little too strict. From these stocks I rate them based on value and start researching, if there is something I come across that I think warrants an investments based on quality, value and potential for that value to increase then i'll make an investment. My position size is then based on the quality, the value and the size of the company. 

That is essentially the extremely basic version of what i'm planning to work through. Still nutting a few things out but once i've got it all nailed down i'll probably start posting my portfolio much like robusta has. Boy has this thread gone off on some tangent's but I think everyone will agree the discussion has been very insightful.


----------



## tech/a

kermit345 said:


> craft, your first 2-3 paragraphs are almost identical to the research I have infront of me at the moment. Essentially there is a value and small cap return premium available in the market but to receive it you have to weight entirely to these two areas of the market across a number of stocks which would be very capital intensive and require many hours per week to administer.
> 
> For those interest the following are the returns quoted by the research for given periods based on value or small cap weightings.
> 
> Australian Stocks - 1980-2010
> Australian Value Index - 20.40% annual return
> S&P 500 Index - 14.43% annual return
> Australian Growth Index - 10.71% annual return
> 
> US Large Cap - 1927-2010
> US Large Value - 14.03%
> S&P 500 Index - 11.88%
> US Large Growth - 11.35%
> 
> US Small Cap - 1927-2010
> US Small Value - 19.17%
> US Small Growth - 13.95%
> 
> Emerging Markets 1989-2010
> Emerging Value - 25.01%
> Emerging market Index - 19.46%
> Emerging Growth - 17.05%
> 
> Now obviously this depends on their metrics of 'value' and 'small' which are not on the slide. Essentially Large-Small is based on market cap and Value-Growth is based on Book to Market according to whats written in the other slides. PM me if your interested in the article that supports the above.
> 
> I'm basically mixing and matching a lot of what people have talked about on here and tweaking as I go along much like robusta.
> 
> I'm taking a semi-mechanical approach although I think my metrics may be a little too strict. From these stocks I rate them based on value and start researching, if there is something I come across that I think warrants an investments based on quality, value and potential for that value to increase then i'll make an investment. My position size is then based on the quality, the value and the size of the company.
> 
> That is essentially the extremely basic version of what i'm planning to work through. Still nutting a few things out but once i've got it all nailed down i'll probably start posting my portfolio much like robusta has. Boy has this thread gone off on some tangent's but I think everyone will agree the discussion has been very insightful.




So a reasonable argument to trade indexes.
But I can't see how it helps " value investors "
They have to find " value " within the index.

So pretty well all here are still nutting out their plan
No one has portfolio returning a long term profit.

Don't get me wrong many technical traders are in the same boat.
If you take a look at the individual threads on stocks many many
Punters are convinced they have recognized value and nothing shakes
Their commitment. Even a fall of 80% of it's  value doesn't deter them.

Does supply and demand enter into your considerations?
How do you limit risk?
How do you handle opportunity cost?
Why if a stock is " value " and drops 50 % isn't it seen as amazing value
And holders buy more?
Why don't new buyers see the light and buy like mad?
Why in most cases do they keep falling?

I've seen a few attempts of showing the strategy of averaging down to be a valid and
Powerful method of maximizing profits.
They have only proven the exact opposite.

Sure the odd one will recover but decimation of capital over the long term is
The most common result.
Any papers around on that?


----------



## craft

tech/a said:


> No one has portfolio returning a long term profit.




I know factually that this is not correct.

In the absence of me bearing my sole on a public forum - please read the THE SUPERINVESTORS OF GRAHAM-AND-DODDSVILLE link that I posted below.

http://www.tilsonfunds.com/superinvestors.html

Not only is the argument robust – It was made in 1984 and the names mentioned have continued to have public success.

Continuing to claim that FA has no success will just alienate people that know that is not true from your other messages.


----------



## odds-on

Tech A,

I would recommend getting the following book out of the library if you have not done so already:-

http://www.amazon.com/Buffett-The-Making-American-Capitalist/dp/0385484917

The key point that I took from the book is that whatever business he is involved in, be it common stock purchases or private business purchases or reinsurance. He only ever does business when the odds are firmly in his favour. A critical skill to make money and something I suspect some investors do not actually get.

Read this:-

http://www.tweedy.com/resources/library_docs/papers/WhatHasWorkedInInvesting.pdf

You only need to read the first 6 pages! But it gives an FA investor a start of where to go fishing to start getting nice odds. 

If a stock of a business is displaying some of the value characteristics outlined in the pdf and the business model is sound (limited failure modes) then it is probably a fair investment. From what I have seen on various forums, blogs and my own experience is that most FA investors are not patient enough to wait for the value characteristics to be bargain and overestimate their ability to assess the business model. The expected value of the investment ends up too low, when the difference in quantified confidence in a business model needs to go from  90% to 95% to make the expected value calculation positive the average FA investor is doomed. I use a screener with bargain value characteristics to stop me looking at companies that are not bargains and I am extremely critical of my own ability to assess business models, hopefully this will put the odds in my favour.

Whatever approach an investor uses it is all about the odds. Thinking like a poker player is key 

Cheers

Oddson.


----------



## kermit345

Essentially tech/a the figures I posted means that even if your picking the middle of the pack or possibly even the worst of the 'value' stocks your still going to beat the middle of the pack or worst of regular or particularly growth stocks. (From memory the standard deviations were all pretty similar).

In terms of anyone here having long-term profit, I have no idea but i'm sure there are some making a decent profit so far. However as I said the guy giving the presentation I attended stated that it takes approximately 64 years to perfectly know you have the ability to pick stocks that outperform the market in terms of a value approach.

Does that mean all of us here a beating a dead horse? certainly not, any of us could have a methodology or ability to constantly pick winners that outstrip the market but can we prove it? Probably not until we've done so for at least 10 years, or to be 100% confident - 64 years. This essentially answers your question, can we prove that any of our preferred metrics are better then others or are profitable long-term - Not at the moment. Although i'm sure people have chosen to go down the 'value' investing path for one reason or another and may not need that certainty that you have with TA. I don't think there is a right or wrong way to go about it, although as you've stated TA can have a positive expectency while FA struggles to prove it does until walking forward for some time. However I (and i'm sure others) actually enjoy the FA way of doing things and find it makes more sense to me.

In terms of the questions you posed:
Supply/Demand would have to be considered as you don't want to buy something you cannot sell when it reaches your preferred price or when it falls to a level where you want to remove it from your portfolio. Illiquidity is something nobody wants to deal with.

Limitting risk - have a substantial margin of safety to your target price and I think its important to have your target price as a conservative range of prices as there is no magic number a company can be worth. You buy when you have a margin to the lowest point of this range to minimise the risk that a) your analysis is incorrect or b) your expected earnings doesn't eventuate/disapoints.

Opportunity cost will depend on the individuals analysis, if i'm in a company that i percieve as medium quality and medium value and there is an opportunity to enter something medium quality but high value then I should enter the high value opportunity, otherwise the basis for investing in value companies to start with is flawed.

It depends in which context you saying a stock 'drops 50%'. If it's in a day then you'd think there would be some form of an announcements to produce such a drop which is essentially out of your control and you'd have to re-do your analysis. If it is a gradual decline then essentially either your margin of safety was not adequate enough or your analysis was way off. I haven't been around long enough to know the answer to the following question but some may - how often has a stock deemed as a 'value' investment dropped 50% when already purchasing with a margin of safety for no apparent reason or change to the fundamentals but just a gradual decline? I'd think it would be rare but cannot substantiate.

In terms of why do they not keep falling, that depends on the individuals strategy as not all value investing is simply buying an unloved stock that has dropped from highs. It may be buying a stock with great earnings upside which is already in an uptrend but simply hasn't realise its value yet. But I think for the instance of 'why do they not keep falling' a small amount of chart looking should be used to see if some simple support levels can be recognised and used for entry levels.

wow this post got long, happy to continue the discussion and robusta if this is annoying you in any way as its your thread simply say so and we can move it elsewhere.


----------



## sinner

kermit345 said:


> Essentially tech/a the figures I posted means that even if your picking the middle of the pack or possibly even the worst of the 'value' stocks your still going to beat the middle of the pack or worst of regular or particularly growth stocks. (From memory the standard deviations were all pretty similar).




Err ...except like I said, *growth* has been chopping *value* as a FA metric since the GFC.




Using the common valuation metrics has underperformed the index and growth, undeniably, since the GFC.


----------



## craft

odds-on said:


> Whatever approach an investor uses it is all about the odds. Thinking like a poker player is key Oddson.




Goid point Odds-on and to think I have been thinking Odd - Son when I see your name.:

I guess the Tom Knapp link between and the superinvestor speach and Tweedy Browne is not lost on you.


----------



## kermit345

Fair enough sinner although from the charts I just looked at it seems the outperformance has only been since mid to late 2010. Also I wasn't probably precise enough with what I said, the research I was presented with showed that value investing outperformed over the longer-term and not over 1-3 year periods.

If you look at those same index's you've shown since 1/1/2001 the value index has outperformed the growth index by almost double.

79.73% vs 40.11%

Or if you look back as far as google finance would let me - 4/8/2000 the value index had also outperformed the growth index by even more:

102.85% vs 19.07%

This leads me to believe that while the growth index is outperforming value at the moment since the GFC, i'd like to see how it has gone maybe 4-5 years from today.

EDIT: Note the index's are made up in a similar fashion to the research I was presented with - This index uses Price to Book (essentially the inverse of Book to Market as i've said before in here) and also only uses the small cap area.


----------



## sinner

kermit345 said:


> Fair enough sinner although from the charts I just looked at it seems the outperformance has only been since mid to late 2010.




Definitely not only since 2010. This is a secular change in the market which began distinctly with the Quant blowup in 2007.



> Also I wasn't probably precise enough with what I said, the research I was presented with showed that value investing outperformed over the longer-term and not over 1-3 year periods.




So precisely how many years of underperformance will be required for you to 'change your mind'? I don't know why it's such a bloody argument, personally I just rate metrics like this by 6 month momentum and tend to float with whichever has the highest momentum. Why run a value metric when it's consistently underperforming the index? You don't gain anything, there is no chance of 'missing out', it's pretty easy to rotate out of market cap index into value index or growth index and vice versa.



> If you look at those same index's you've shown since 1/1/2001 the value index has outperformed the growth index by almost double.
> 
> 79.73% vs 40.11%
> 
> Or if you look back as far as google finance would let me - 4/8/2000 the value index had also outperformed the growth index by even more:
> 
> 102.85% vs 19.07%




Um yep, like I pointed out already to tech that the majority of financial research literature is focusing specifically on the outsized returns in value for decades.  Try not to get hung up on the % performance since these are highly dependant on the start date, using ratios tends to avoid this issue "how much value is one growth worth, how much growth is one value worth".

Rather I am pointing out that this old news is no longer functional. If you want to keep running with it that's fine, I'm happy to let the numbers do the talking. 



> This leads me to believe that while the growth index is outperforming value at the moment since the GFC, i'd like to see how it has gone maybe 4-5 years from today.




lol, assume you've travelled back in time to 2007-2008, today is 4-5 years since then. Unless you are now claiming something has changed in the global economy today that will return value to its old position?



> EDIT: Note the index's are made up in a similar fashion to the research I was presented with - This index uses Price to Book (essentially the inverse of Book to Market as i've said before in here) and also only uses the small cap area.




I just use the Russell2000 models because they are more economically representative. You can see the exact same thing in mid cap growth:value ratio or large cap growth:value ratio. You can compare international growth versus international value. 



I find it hard to accept that this isn't a secular change in the market, but realistically choose not to get bloody about it, value is just a metric, happy to use the metric which provides the best return and not lose sleep about those that are underperforming.


----------



## odds-on

craft said:


> Goid point Odds-on and to think I have been thinking Odd - Son when I see your name.:
> 
> I guess the Tom Knapp link between and the superinvestor speach and Tweedy Browne is not lost on you.




Craft,

I believe in value investing as it puts the odds in the investors favour. I  read as much as I can on the topic (familiar with Superinvestors, Tweedy etc), however I do believe it is critical that an investor must tailor their value investing approach to suit both themselves and the market they invest in. As mentioned on other threads there is not only earning risk and financial risk to consider but there is valuation risk, which means not only overpaying but asking a serious question about whether an investor can actually assess that business properly. I have endless amusement reading a certain blog and the analysis made by posters. In a lot of cases unless you actually have to work at some of the companies (or at least within the industry) for decades to really be able to value the company properly. I accept my poor business assessment and lack of interest in the finer points of accounting so instead just use basic financial ratios, common sense and a cheap price. All I really ask a lot of the time is:-

•	Am I at least 80% confident the company will be earning money in the medium term?
•	Will I double my money in the medium term?

A top  “investment” book is called The Hole in One Gang. It is about a couple of UK punters in the 90’s who noticed the mispricing on hole in one odds for the major golf tournaments. They acted properly by doing thorough research, quitting their jobs and spending 3 months travelling round the UK laying bets with every bookie they could. They made a killing. I am happily waiting for the day (hopefully in my lifetime) on the ASX when an “Hole in One” type event comes up – every single dollar that I have will be put on it. If you have not already read Poor Charlie’s Alamanac I recommend it, if my memory serves me correct he puts the Washington Post purchase as a 1 in a 30 year bet. 

What I would love to do it create a value investing play book for the ASX. For any type of the business on the ASX th eplay book gives the three key points to use in making an investment decision to maximise expected value. For example, buy any of the big four banks if they meet the following criteria:-

1.	Trading below book value
2.	The oligopoly is intact
3.	Bank meets certain financial risk criteria. 

Hold until either you make a decent ROI or it fails on 2. or 3. If the price drops keep buying. You get the idea, get rid of the noise and keep it simple to execute.

Cheers

Oddson


----------



## tech/a

> So pretty well *all here *are still nutting out their plan
> No one has portfolio returning a long term profit.




Read in context.
I didnt mean the whole world.

Will read and reply to all others when I have time.


----------



## motorway

sinner said:


> Definitely not only since 2010. This is a secular change in the market which began distinctly with the Quant blowup in 2007.




Growth Vs Value
with the benefit of hindsight

http://www.iinews.com/site/pdfs/JPM_Summer2009_RA.pdf


Margin of safety

Looking for the exceptional cases

Absolute Vs Relative

All apply to all forms of analysis.

Time as in Market Conditions / phase





Motorway


----------



## sinner

motorway said:


> Growth Vs Value
> with the benefit of hindsight
> 
> Motorway




Thanks for the *great* article motorway, I think kermit might find the chart titled "Exhibit 1" rather interesting in lieu of the discussion of 'outperformance'...



> It is unsur- prising that, when the dispersion in valuation multiples widens, usually growth concurrently beats value, and vice versa. At the peak of the tech bubble in early 2000, after a stellar period for growth stocks, Valuation Dispersion had widened more than at any time in U.S. capital mar- kets history.11 This laid the foundation for seven consec- utive years of success for value investors. Then, after this seven-year winning streak for value stocks, the dispersion of valuation multiples was nearing all-time lows. This, in turn, laid the foundation for the debacle that occurred in value stocks from 2007 to early 2009.


----------



## craft

sinner said:


> Thanks for the *great* article motorway, I think kermit might find the chart titled "Exhibit 1" rather interesting in lieu of the discussion of 'outperformance'...




Well I'm confused. I thought you were arguing structural change and Kermit cyclical. That report clearly adds weight to the growth-value cycle.


----------



## craft

tech/a said:


> There are a few here like me hat can tell from people's postings if they trade or not and of those if they are profitable .






tech/a said:


> So pretty well *all here *are still nutting out their plan
> No one has portfolio returning a long term profit.
> 
> 
> 
> 
> 
> Read in context.
> I didnt mean the whole world.
Click to expand...



I can only conclude that you are not as insightful as you think.


----------



## sinner

craft said:


> Well I'm confused. I thought you were arguing structural change and Kermit cyclical. That report deficiently adds weight to the growth-value cycle.




You can see the "Exhibit 1" chart to see what I mean, there is a longer cyclical relationship which was happening just fine for a long time.



At the end of the chart, the cycle breaks down (magnitude blowout which indicates very high instability of the 'kernel').

The outperformance which kermit mentioned, unfortunately is only the result of the mean reversion from that blowout. Cyclical outperformance of either growth or value would have been many many orders of magnitude smaller.


----------



## kermit345

sinner, don't really understand why you've came into a thread where some decent discussion was happening and now using your sarcasm and attempting to belittle others?

Anyhow, I've read through that article motorway provided a couple of times and correct me if i'm wrong but this is what I took from it:

- Value and Growth have continued to be cyclical over the very long term
- The market continues to regularly pay a premium for growth stocks and is relatively good at picking these growth stocks however continue to pay a high premium for them which somewhat negates outperformance.
- The cap weighted portfolio is essentially a growth portfolio as its weighted to the largest companies obtaining the highest premiums and has underperformed the value portfolios on all timeframes and had greater volatility (10 yr, 20yr, 50yr and 50yr CAPM adjusted)
- The article states that the market 'never failed to overpay' for the growth companies and even though it picked stocks with growth prospects accurately, but then overpays compared to value stocks by roughly double, hence leading to outperformance of value stocks if/when they realise their earnings growth

Question: If its stating that value is better found when the dispersion is wider does that indicate that if your very selective in your 'value' investments and only invest when there is deep deep value with large MOS that this is a perfrect situation for you to outperform?

Anyhow, I agree with you sinner that growth v value is cyclical, has a structural change happened? well who knows the article even states itself that it takes a long long time to realise but that it is a possibility.

Also note the sentence on the same page as Exhibit 3:
"Value has outperformed growth in most years, in most markets around the world, for decades."

So if we have undergone a structural change then you may very well be correct that value will now become the underperformer, but i'm personally happy to stick with the value approach for now.


----------



## craft

sinner said:


> You can see the "Exhibit 1" chart to see what I mean, there is a longer cyclical relationship which was happening just fine for a long time.
> View attachment 46693
> 
> 
> At the end of the chart, the cycle breaks down (magnitude blowout which indicates very high instability of the 'kernel').
> 
> The outperformance which kermit mentioned, unfortunately is only the result of the mean reversion from that blowout. Cyclical outperformance of either growth or value would have been many many orders of magnitude smaller.




The study reinforces that over the long term too much is paid for growth irrespective of whatever the value-growth cycle may be doing. The skew is in favour of value. Growth will have relatively smaller periods of outperformance when the cycle is most favourable. 
Are you saying Kermit drew his conclusions by only looking at data since 2000? Maybe Kermit can clarify.


----------



## craft

craft said:


> Are you saying Kermit drew his conclusions by only looking at data since 2000? Maybe Kermit can clarify.




ooops I see Kermit has already clarified.

Forums are a terrible medium for communicating – I thought Sinners contributions were good, it’s unfortunate that you feel offended Kermit.


----------



## sinner

kermit345 said:


> Question: If its stating that value is better found when the dispersion is wider does that indicate that if your very selective in your 'value' investments and only invest when there is deep deep value with large MOS that this is a perfrect situation for you to outperform?




It simply states wide value dispersion indicates during the next 'cycle' value premium will outperform growth premium. 

If you are buying 'deep deep value' (whatever that is) stocks with a large 'margin of safety' (a concept which makes 0 sense to me unless you can freeze time) while value dispersion is narrow then you are still likely to under-perform. 

This is only an assumption so correct me if I'm wrong, but probably your conception of 'deep deep value' and a large MOS was found at the 2008 low? Well since then small cap value has underperformed small cap growth by 30% and small cap index by 15%.



The issue is similar to other forms of dispersion, the more I think about it. To me it still makes the most sense to just sort by momentum and follow what's working.


----------



## kermit345

craft - sinners contribution is great, maybe i'm just picking up on the way he's putting it across differently - as you say the internet can sometimes be poor for communicating views etc.

My conclusions are drawn from the material i received at a presentation which had supporting data dating back to around 1930 for the US and 1980 for emerging/australia. I only used mid 2000 as the starting point for the iShares comaprisons as that was the earlier point any charts would let me use as a start point (assume this is when the index's were started?)

Anyhow craft has captured my understanding of the article in his 2-3 sentences, essentially the market consistently overpays for growth and this premium reduces performance except in some cycical periods where even though the market continues to pay this premium, the growth outweighs it and they do outperform. However as the article states, this scenario occurs less then how often value outperforms - hence long-term value outperformance.


----------



## kermit345

sinner said:


> It simply states wide value dispersion indicates during the next 'cycle' value premium will ....




Fair enough, I guess my question was a pretty poor one, as people determine value differently. It was more in relation to what the article was theoretically suggesting rather then what the market has actually done in recent times.

sinner, following 6 month momentum is probably a fair way to work and you'll probably outperform value AND growth as your capturing the momentum for each in their cyclical natures.

Just personal preference I guess, as i'd personally rather stick to the value approach as I enjoy it and can see that it has the potential to outperform over the very long term - being 25 i'm lucky enough to have time on my side. Maybe I should look at incorporating a growth element to my investing philosophy at some stage when I can see momentum moving against value.


----------



## sinner

craft said:


> The study reinforces that over the long term too much is paid for growth irrespective of whatever the value-growth cycle may be doing. The skew is in favour of value. Growth will have relatively smaller periods of outperformance when the cycle is most favourable.
> Are you saying Kermit drew his conclusions by only looking at data since 2000? Maybe Kermit can clarify.




I didn't lose sight of the original kermit quote



> Essentially tech/a the figures I posted means that even if your picking the middle of the pack or possibly even the worst of the 'value' stocks your still going to beat the middle of the pack or worst of regular or particularly growth stocks. (From memory the standard deviations were all pretty similar).




Everything I posted was simply to show this statement is unqualified and therefore misleading, especially since the GFC! Value doesn't beat always growth or even the middle of the pack. For the last market cycle (2008 lows) this has been plain false. motorways great article showed there is a fulcrum, which shows clearly you can't just rely on buying value, even over the long term. The "exhibit 1" chart only convinced me further of structural change, in lieu of the huge instability of growth/value ratios, not something you expect from a properly 'stationary kernel'.


----------



## tech/a

This is all very nice.
Charts abound.
Evidence is overwhelming-------------

*BUT*

How on earth does this help the investor/trader who has to value *HIS* portfolio
and fill it with *" VALUE "* stocks---not an index.

His stocks *ARE* his index.

*OR*

Are you suggesting you trade the *INDEXES*?


----------



## sinner

tech/a said:


> How on earth does this help the investor/trader who has to value *HIS* portfolio




Mainly it shows how the scientific literature does this. The opposite of most Benjamin Graham techniques really. I decide on a simple/robust valuation metric (e.g. P/B) and then buy the cheapest quintile or decile of stocks. Now I have my portfolio and it is 'valued' as the cheapest N stocks in the universe measured by XYZ metric.



> Are you suggesting you trade the *INDEXES*?




tech I am not sure you grasp entirely? 

The "index" you refer to is just another trading system pulled from the scientific literature: buy the N largest stocks by market cap, weighted by market cap, rebalance yearly.

The indices I am referring to are the same, trading systems pulled from the scientific literature: buy the N stocks with the highest/lowest metric in a given market cap range universe and rebalance yearly. These indexes are the answer to your question about 



> Any papers around on that?




They "value" index is simply the equity curve of a "value" system...


----------



## McLovin

Interesting posts Sinner. Nice to have a balance of opinions.

I'm not sure that value and growth are always mutually exclusive. Value investing is a continuum. Growth at a reasonable price is certainly in there somewhere.


----------



## kermit345

There in lies the issue Tech/a, in my view it has been shown to some extent that value outperforms growth over the long-term, but this has only been evidenced in the form of index's.

Logic would suggest that if you pick 'the best' of these value stocks then those stocks will be the ones that drive that outperformance of the index. However i haven't personally seen any evidence that suggests this is the case or what metrics, ratio's etc determine exactly what is 'the best'.

Would be interesting to see the performance of portfolios constructed of 12-18 stocks based on different mechanical filters such as the following:

Portfolio 1: Only stocks with D/E less than 40%, ROE above 10%, market cap must be above $100 mill and must trade at least a 25% discount to sector or avg peer P/E's
Portfolio 2: Only stocks with D/E less than 40%, ROE above 10% and invest in the stocks with the highest Book to Market values
Portfolio 3: D/E less than 40%, EPS and Cashflow/share both positive and within +/- 15% of each other, invest in the top ranking EPS growth shares

Obviously these are all entry criteria and you've had to put exit criteria etc etc around it, but would be interesting to see what achieves the greatest results. As i've said, the research I've seen stated that they found Book to Market to represent value the best (higher it is, better the value). 

Your right though tech/a, theres reasonable evidence regarding value index's, not so much in terms of individuals portfolios. Not sure this proves it doesn't work though, just that there is a lack of research (as far as i'm aware of).


----------



## kermit345

sinner said:


> Mainly it shows how the scientific literature does this. The opposite of most Benjamin Graham techniques really. I decide on a simple/robust valuation metric (e.g. P/B) and then buy the cheapest quintile or decile of stocks. Now I have my portfolio and it is 'valued' as the cheapest N stocks in the universe measured by XYZ metric.
> 
> 
> 
> tech I am not sure you grasp entirely?
> 
> The "index" you refer to is just another trading system pulled from the scientific literature: buy the N largest stocks by market cap, weighted by market cap, rebalance yearly.
> 
> The indices I am referring to are the same, trading systems pulled from the scientific literature: buy the N stocks with the highest/lowest metric in a given market cap range universe and rebalance yearly. These indexes are the answer to your question about
> 
> 
> 
> They "value" index is simply the equity curve of a "value" system...




nice post, although that metric is still pulling in at least a few hundred stocks. I guess tech/a is referring to a small individuals portfolio? I'm assuming a similar result would be achieved in the long term however there would be greater volatility and tracking error in the individuals portfolio.


----------



## sinner

kermit345 said:


> nice post, although that metric is still pulling in at least a few hundred stocks. I guess tech/a is referring to a small individuals portfolio? I'm assuming a similar result would be achieved in the long term however there would be greater volatility and tracking error in the individuals portfolio.




I just used 'that metric' as one which is an example of something simple/robust. Anyone can value using whatever metric they like.

McLovin, I completely agree they aren't mutually exclusive. There are papers out there for double/triple/quadruple sort strategies which are some combo of/like momentum => growth => value => liquidity. At least in the past, combining FA metrics has been shown to decrease volatility and in some cases increase returns significantly.


----------



## tech/a

sinner said:


> Mainly it shows how the scientific literature does this. The opposite of most Benjamin Graham techniques really. I decide on a simple/robust valuation metric (e.g. P/B) and then buy the cheapest quintile or decile of stocks. Now I have my portfolio and it is 'valued' as the cheapest N stocks in the universe measured by XYZ metric.
> 
> 
> 
> tech I am not sure you grasp entirely?
> 
> The "index" you refer to is just another trading system pulled from the scientific literature: buy the N largest stocks by market cap, weighted by market cap, re balance yearly.
> 
> The induces I am referring to are the same, trading systems pulled from the scientific literature: buy the N stocks with the highest/lowest metric in a given market cap range universe and re balance yearly. These indexes are the answer to your question about
> 
> 
> 
> They "value" index is simply the equity curve of a "value" system...




Yes Now you have explained it I do understand it.

*NOW ILL GET TO MY POINT*

I believe that the larger majority of Investor/Trader method is now archaic certainly in the retail sector.
All of those using the metrics they are studying and tinkering with now will be seen as Dinasours. Plodding around in the dark.

Take 10 mins and watch this video

http://www.mtpredictor.us/2099/correction-came-but-how-deep/


----------



## sinner

tech/a said:


> All of those using the metrics they are studying and tinkering with now will be seen as Dinasours. Plodding around in the dark.
> 
> Take 10 mins and watch this video




I disagree. Most of the 'advanced' quant stuff I see these days is still using 

*simple/robust* 

without caring how archaic it is. I am *really surprised *to hear this coming from you actually. Are you telling me the fresh research coming out in 2010-2012 period which uses nothing but standard deviations of returns and a 10SMA to generate un-correlated 10-20% P.A. is 'plodding around in the dark'?

The video you post is old news to anyone who has been reading zerohedge since 2009. Nor are HFT any sort of god. They have a competitive informational advantage, *their edge isn't in the use of a spline instead of a moving average*.

Sorry for the hijack robusta.


----------



## kermit345

Yup, when I said 'that metric' I just meant it in the general sense of whatever the individual is using. There are that many different forms of 'value investing' its a bit overwhelming.

Tech/a - Just watched that video, makes you wonder where markets will be in 5, 4 or even 2 years time based on algorithmic trading. Makes it even worse to know these algorithms are built to make multiple 'incorrect' trades to trick other algorithms and flood the market with data.

To my knowledge the Aussie market doesn't have as higher percentage in algorithm trading but it is heading in the same direction. Will regulators need to step in? In my view I think this still means value investing has it merits, but as algorithmic trading continues to involve maybe it will make the value realisation timeframes even longer then they already are?


----------



## craft

tech/a said:


> Yes Now you have explained it I do understand it.
> 
> *NOW ILL GET TO MY POINT*
> 
> I believe that the larger majority of Investor/Trader method is now archaic certainly in the retail sector.
> All of those using the metrics they are studying and tinkering with now will be seen as Dinasours. Plodding around in the dark.
> 
> Take 10 mins and watch this video
> 
> http://www.mtpredictor.us/2099/correction-came-but-how-deep/




That video might be relevant to people who trade based on price. (maybe not)

But how does it have any relevance to somebody who buys a business based on that business generating the return?

If you had Algo’s squabbling over the price of your business and making millions of trades trying to get the better of each other – would it actually make any difference to you as the owner, the one who gets the excess cash flows?


----------



## kermit345

Further to this does it mean a company whose value is for instance approx $10.00, has EPS of $1.00 and pays DPS of $0.60, may have a share price of lets say $9.00. The algo's continue to trade millions of times at the $9.00 mark as they take over the market but Joe Blog's buys some at $9.00 as well. As the algo's keep squabbling at $9.00 but EPS rises to $2.00 and DPS rises to $1.20 Joe Blogs can enjoy an effective yield of 13% while algo's squabble over the $9.00 price still.

Hard to imagine this scenario playing out, businesses will still make profits at a growing rate and return some of this to shareholders, the maket manipulation from algo's just may make it more difficult for some investors to have conviction in their investment decisions as the price action may cause them to second guess themselves?


----------



## tech/a

craft said:


> That video might be relevant to people who trade based on price. (maybe not)
> 
> But how does it have any relevance to somebody who buys a business based on that business generating the return?
> 
> If you had Algo’s squabbling over the price of your business and making millions of trades trying to get the better of each other – would it actually make any difference to you as the owner, the one who gets the excess cash flows?




Well my view is you dont need a bot trading in microseconds.

But what you do need is to step out of the box and make use of the technology available to us.
Sure youll get value but your'e in the position---with some knowledge to be in the market right at the begining and out right at the end through the peaks and troughs
100s of times in a trend.

Maximising profit and minimising loss---with minimal opportunity cost and eventually minimal work on your part. Gone will be the massive drawdowns---Profits which would have your head spin thought impossible only 10 yrs ago.

Those who recognise this opportunity early enough will be leaders in a field where tweeking will be an art form!

Anyway I plant this as food for thought ---- remember man would never travel faster than the speed of sound!


----------



## robusta

Just a quick bit of housekeeping, I post the progress of my portfolio on this thread but in no way do I think I own it or have a right to moderate it. So if anyone has anything interesting to say I am more than happy for it to be posted here.

There was however some excellent analysis on Cochlear a few pages back and I would like Joe's opinion if this should be pasted on the COH thread as a reference for investors who may miss it here.


----------



## tech/a

Sorry Robusta
I'll go back to watching with interest


----------



## Joe Blow

robusta said:


> I would like Joe's opinion if this should be pasted on the COH thread as a reference for investors who may miss it here.




I think that's a very good idea. The more analysis in stock threads the better.


----------



## robusta

tech/a said:


> Sorry Robusta
> I'll go back to watching with interest




Not at all you have generated some great discussion. I would like to take a few days to digest a few of the recent posts but in no way want to deter anyone from this discussion.

To tell the truth I do not have anything intelligent to add at the moment.


----------



## tech/a

craft said:


> That video might be relevant to people who trade based on price. (maybe not)
> 
> But how does it have any relevance to somebody who buys a business based on that business generating the return?
> 
> If you had Algo’s squabbling over the price of your business and making millions of trades trying to get the better of each other – would it actually make any difference to you as the owner, the one who gets the excess cash flows?




Well *YES* it does.
In fact I think youll find the landscape of the market as we know it will be altered for good.

Having a chat to my resident quant he makes some valid points.
(1) human behaviour may be taken out of the equation--Fear and Greed.
(2) price will no longer act in ways which human behaviour can be read.
(3) Fundamantal analysis will no longer determine price.
(4) Supply and demand will be governed by the algo's trading the instrument.
(5) Those algos will have algos "learning" their algos to profit from them.
(6) Goverments and larger business will be and are using them.
(7) The punter will just be bled---the algo knows if it/they made the bid or ask and will either buy or sell to take advantage of the "New Money"---effectively pocketting it. remember they are big enough to control price. As such they will control the price of a company---if its bot traded.

Brave New World
Fanasy?


----------



## robusta

Efficient market theory on steroids I hope this gains some followers as I believe it will create more opportunity for me.


----------



## McLovin

robusta said:


> Efficient market theory on steroids I hope this gains some followers as I believe it will create more opportunity for me.




Exactly. But some arguments aren't worth having.


----------



## motorway

tech/a said:


> Well *YES* it does.
> In fact I think youll find the landscape of the market as we know it will be altered for good.
> 
> Having a chat to my resident quant he makes some valid points.
> (1) human behaviour may be taken out of the equation--Fear and Greed.
> (2) price will no longer act in ways which human behaviour can be read.
> (3) Fundamantal analysis will no longer determine price.
> (4) Supply and demand will be governed by the algo's trading the instrument.
> (5) Those algos will have algos "learning" their algos to profit from them.
> (6) Goverments and larger business will be and are using them.
> (7) The punter will just be bled---the algo knows if it/they made the bid or ask and will either buy or sell to take advantage of the "New Money"---effectively pocketting it. remember they are big enough to control price. As such they will control the price of a company---if its bot traded.
> 
> Brave New World
> Fanasy?





As long as buying and selling has to be done , very little that matters  will change.

Patterns in demand and supply!

Every position taken  has a dual effect.

A buy has to be sold !

And a Sell has to some point will buy. 

cause and effect will always create imbalance and opportunity.

What causes rational and irrational  ?

The amount of money chasing opportunity. The amount of money entering or leaving. Being created or destroyed. This will always be changing. There will always be following of perceived opportunity , this creates other opportunities.

There is Trend and Counter Trend ( IE there are different reactions and actions )

Hence there  will always be Tops and Bottoms and turning Points and of different degrees.

Everyone also needs someone to buy and sell from.
*natural selection* ( always a key concept ) will favor an increase not a decrease in market niches and of the number of profitable time horizons.

Fundamental Analysis will have more not less opportunity as will everyone else. ( that is two sided as well ).

The coastline of prices will just get much more fractal not less.

Motorway


----------



## tech/a

motorway said:


> As long as buying and selling has to be done , very little that matters  will change.
> 
> Patterns in demand and supply!
> 
> Every position taken  has a dual effect.
> 
> A buy has to be sold !
> 
> And a Sell has to some point will buy.
> 
> cause and effect will always create imbalance and opportunity.
> 
> What causes rational and irrational  ?
> 
> The amount of money chasing opportunity. The amount of money entering or leaving. Being created or destroyed. This will always be changing. There will always be following of perceived opportunity , this creates other opportunities.
> 
> There is Trend and Counter Trend ( IE there are different reactions and actions )
> 
> Hence there  will always be Tops and Bottoms and turning Points and of different degrees.
> 
> Everyone also needs someone to buy and sell from.
> *natural selection* ( always a key concept ) will favor an increase not a decrease in market niches and of the number of profitable time horizons.
> 
> Fundamental Analysis will have more not less opportunity as will everyone else. ( that is two sided as well ).
> 
> The coastline of prices will just get much more fractal not less.
> 
> Motorway




I agree when dealing with a humans.
but when dealing with a mathamatical formula which reacts to supply and demand without emotion.
I have my doubts.
Frankly I dont think anyone knows just yet what it will mean to retail clients.
But take out the human element and you have much much less to work with.

And its not a theory already wide spread in US and Euro Markets.
And getting bigger.


----------



## sinner

tech/a said:


> Having a chat to my resident quant he makes some valid points.




Why don't you just call your son, your son? 



> Brave New World
> Fanasy?




Because all the algorithmic trading that's gone on so far has been so spectacularly successful  that all the institutions love it! Oh wait, nope, they ****ing hate getting subpennied and execute in dark pools now. *Hilarious* stuff tech, fear and greed removed, were you not trading on May 10 2010?

It's *our* money, earned through productivity invested through superannuation and funds that these guys think they will be able to 'scalp' forever. Short sighted fools is all they are. I mean, why don't we all just stop producing and start scalping shares, everyone will be rich, right? Oh wait again, nope, turns out the real world still matters more than a bunch of 1s and 0s. 

*Savings and Investment come through societal Productivity*. As if market participants are gonna let HFT steal their productivity day after day after day, they will just abandon the markets and invest their saved surplus productivity out of reach. Dark execution is the case in point.


----------



## tech/a

sinner said:


> Why don't you just call your son, your son?
> 
> 
> 
> Because all the algorithmic trading that's gone on so far has been so spectacularly successful  that all the institutions love it! Oh wait, nope, they ****ing hate getting subpennied and execute in dark pools now. *Hilarious* stuff tech, fear and greed removed, were you not trading on May 10 2010?
> 
> It's *our* money, earned through productivity invested through superannuation and funds that these guys think they will be able to 'scalp' forever. Short sighted fools is all they are. I mean, why don't we all just stop producing and start scalping shares, everyone will be rich, right? Oh wait again, nope, turns out the real world still matters more than a bunch of 1s and 0s.




Frankly I dont know the outcome.
But what I do know is that if masses of money can be made then youll find a following.
It has a following and its getting bigger.
to the point where questions are being asked as how to control it.
What are the effects on markets going to be.
What should be done if anything.

Its newish.
Its evolving.
Its here to stay.
Computers were only a fad they could never be afforded by the common man.
My phone has more power than the first which took up a whole building.

Will it stop me trading.
Like you no.
But it will have me mindful of whats out there and *if I can't quantify my edge and monitor it---I wont be doing it!*

Thats MY WHOLE POINT.
Lost on most.


----------



## burglar

tech/a said:


> ...
> 
> Thats MY WHOLE POINT.
> Lost on most.




The bots are removing their own edge as humans are pushed out of trading.

The market as described to me three decades ago was a very different place to when I joined in, a decade ago.

And now it is different again!
Ohh well!!


----------



## Ves

Short to medium term traders will possibly be affected by HFT bots.

However, over the longer time horizon only the underlying success of a business can matter.  Anything else and equities are ignoring the underlying reality of the situation (whether it be to the downside or the upside). Even this cannot matter.  It is no different to anything previous, everything reverts to the mean based on actual business performance. Time-tested rules, as discussed by others in this thread, will tell you what this means in terms of opportunity or flight.


----------



## craft

robusta said:


> Efficient market theory on steroids I hope this gains some followers as I believe it will create more opportunity for me.




Me too.



McLovin said:


> Exactly. But some arguments aren't worth having.





Aint that the truth.



tech/a said:


> *if I can't quantify my edge and monitor it---I wont be doing it*!
> 
> Thats MY WHOLE POINT.
> Lost on most.




We are focused on the value of the business – price is just opportunity. That is or edge. The more price fluctuates from value the more opportunities we get.

I’m happy with a logical basis for profit and a live result to validate it.


Sinner and Motorway - Nice responses you put together there.


----------



## robusta

*Investment sold*

Well picked up 15 shares in the QBE spp and as I have previously explained was looking to sell so;


Sold 200 x QBE @ $13.76


----------



## robusta

*Investment sold*

Credit Corp
Sold 853 x CCP @ $5.84 = $4981.51

This is more a portfolio decision, I am starting to see some value in the market (have two unfilled orders at the moment) and I will be investing in the MTU spp.

CCP is the holding that I think is closest to my estimate intrinsic value so sold to free up cash - and reduce capital losses incurred to date.

Bring on the volatility, I have no particular macro view of where the markets will go but thought it prudent to have capital available to take advantage in the event of a correction.


----------



## tech/a

craft said:


> We are focused on the value of the business – price is just opportunity. That is or edge. The more price fluctuates from value the more opportunities we get.
> 
> I’m happy with a logical basis for profit and a live result to validate it.
> 
> 
> Sinner and Motorway - Nice responses you put together there.




Your valuation is simply opinion.
Your valuation is not likely to be supported by others
Sellers at lower prices certainly don't  support your view ( your --- being value investors).
How can you call it an edge.Particularly when fluctuations particularly away from perceived value is seen as further opportunity?..

Others may and do see it as fair value--- they want out!


----------



## robusta

tech/a said:


> You know you don't have to be right that often
> In fact you can be wrong 90% of the time and still be profitable.
> You just have to know what to do when your wrong and what to do when your wrong!
> First step is to know your right and or wrong within your model.
> If you don't know either then you can't tinker with your outcome!
> 
> Think about it!
> It's NOT ABOUT BEING RIGHT!




If we take a step back and look at the business, the investment decision for me is about being right or wrong. (actually considering the various shades of grey more right or less wrong will have to do)

As a value investor we are looking at the performance of the business to dictate the share price in the long term, so picking a good to great business at a fair to cheap price is IMO more right than the opposite.



tech/a said:


> If it was---- your valuation would match everyone else's and you'd all ride the trade to " fair value" and everyone would be in Barbados.




Lucky for you and me this market is made up of a heap of different strategies and opinions, may we both go forth and profit.


----------



## robusta

tech/a said:


> Your valuation is simply opinion.




Yep you are right



tech/a said:


> Your valuation is not likely to be supported by others




Well just my opinion but I hope not in the short term, in the long term my opinion is that the businesses will perform to a level that will make the earnings difficult for the market to ignore.



tech/a said:


> Sellers at lower prices certainly don't  support your view ( your --- being value investors).




Hard to argue with that but that does not bother me, actually I will often take advantage of those sellers if the prices fall enough to justify a larger position.



tech/a said:


> How can you call it an edge.Particularly when fluctuations particularly away from perceived value is seen as further opportunity?..
> 
> Others may and do see it as fair value--- they want out!




Sorry tech/a take a second look at the last couple of pages on this thread, if you don't get it sorry I cant explain better.


----------



## tech/a

> Sorry tech/a take a second look at the last couple of pages on this thread, if you don't get it sorry I cant explain better.




Your right.
I dont get it and frankly dont want to.
I dont see any edge that interests me.

Thanks for your help though.


----------



## RandR

tech/a said:


> Your right.
> I dont get it and frankly dont want to.
> I dont see any edge that interests me.
> 
> Thanks for your help though.




Horses for courses tech  one question that's relatively simple. If someone bought every company in the asx200 that was PROFITABLE, without buying those that weren't. Would that portfolio outperform the asx200 index under a simple buy and hold ? If yes ... would that not constitute an edge ?


----------



## tech/a

RandR said:


> Horses for courses tech  one question that's relatively simple. If someone bought every company in the asx200 that was PROFITABLE, without buying those that weren't. Would that portfolio outperform the asx200 index under a simple buy and hold ? If yes ... would that not constitute an edge ?




Strangely some of the most amazing market moves for stocks come from those which haven't turned a profit.
Particularly in the mining/tech areas.

Profitability isn't the magic bullet.

In answer to your question has anyone tested that?
Sounds logical but then logic doesn't equate to positive result in many cases.


----------



## sinner

tech/a said:


> In answer to your question has anyone tested that?




Yes, about a million billion times in the literature.



> Sounds logical but then logic doesn't equate to positive result in many cases.




Maybe the results aren't as good as leveraged momentum, but they have proven to be outsized beyond transaction costs and slippage and liquidity.


----------



## tech/a

sinner said:


> Yes, about a million billion times in the literature.
> 
> 
> 
> Maybe the results aren't as good as leveraged momentum, but they have proven to be outsized beyond transaction costs and slippage and liquidity.




Why cant you leverage "Value Investing" if thats what you think gives momentum the edge?
Opportunity cost is what I see as one of the main draw backs with waiting for "Value"
"Value" is nothing more than an opinion which takes time to be confirmed or refuted.


----------



## sinner

You know what, nevermind, f this.


----------



## tech/a

sinner said:


> You know what, nevermind, f this.




----OK----


----------



## kermit345

tech/a I don't think anyone is disputing that technicals allow you to have a mathmatical edge and expectency in your returns based on entering/exiting using a set of rules that are proven to work. We understand this is where your coming from and that using a technical approach your likely to generate outperformance with a positive expectancy based on years of price and volume data validating the approach. (All assuming your rules have been tested, tried and work etc)

The thing with technicals is that its all based on history which is fine, the data is readily available to virtually anyone and allows ideas, theories etc to be proven.

Fundamentals on the other hand is based on looking forward with an element of also looking back. There is 'some' historical data available but its not exactly readily available or easy to utilise for testing etc unless you have the time and resources. This means Fundamentals investing does have a reasonable element of Opportunity Cost risk while waiting for value which does take time to confirm, your 100% correct there.

However what studies, papers and history tells us is that well managed, financial healthy companies continue to flourish, grow and generate returns providing they continue to remain well managed and financially healthy. Everything discussed in this thread on the last few pages including the referrenced materials show that 'value' investing on a whole provides outperformance in comparison to various growth or regular indices over the long term. 

If I enter ABC company at X price can I 'expect' Y return based on my backtesting with fundamentals? - No. But can I make the assumption that based on other peoples findings that if I continue to invest in ABC company due to a number of widely used and accepted metrics such as ROE, D/E and Book to Market that I will over time generate better then market returns? I believe yes providing you also use risk management techniques such as investing with a Margin of Safety and being prudent with valuations. 

I don't think your going to find the answer your pushing for tech/a, that the returns of fundamentals can be reasonably expected based on historical evidence of a ruleset being applied to a set of data. I believe everyone in this thread who is operating on a fundamentals basis is fine with that based on the assumption that value trumps general index's and growth index's over time. Can we prove any of our techniques are better then each others, I don't believe so unless we jump into the future 20-30 years from now and look backwards.


----------



## Ves

tech/a said:


> Why cant you leverage "Value Investing" if thats what you think gives momentum the edge?



 Because longer term value-investing has a lumpier equity curve compared to something like momentum investing which ideally has a much flatter equity curve.



> Opportunity cost is what I see as one of the main draw backs with waiting for "Value"
> "Value" is nothing more than an opinion which takes time to be confirmed or refuted.



The opportunity cost of value investing is no different to that of any other form of trading of investing. You are confusing returns over a shorter time frame with total actual return. If you can make a larger return over a longer time frame why would you want to make a lesser return over a number of shorter time frames just because you are missing out when the returns are flat or negative for some time windows?

This obviously does not apply to those investors who have no business analysis skills and cannot implement a value-investing strategy.


----------



## tech/a

kermit345 said:


> tech/a I don't think anyone is disputing that technicals allow you to have a mathmatical edge and expectency in your returns based on entering/exiting using a set of rules that are proven to work. We understand this is where your coming from and that using a technical approach your likely to generate outperformance with a positive expectancy based on years of price and volume data validating the approach. (All assuming your rules have been tested, tried and work etc)




My discussion here has come from the many many posts I have seen on the A-Z stock threads. Many many of these people struggle. their rhetoric is convincing but their trading ability is woeful. Sure there are the odd few who will jag an outlier event but less than a handful who would turn a profit year in your out.
My discussion or writings here are meant to be thought provoking to those who feel disillusioned.
All others will ignore.




> The thing with technicals is that its all based on history which is fine, the data is readily available to virtually anyone and allows ideas, theories etc to be proven.




So most believe.
To me they present set-ups/or opportunity which can be measured.They give time frame and very clear right or wrong--within that time frame.




> Fundamentals on the other hand is based on looking forward with an element of also looking back. There is 'some' historical data available but its not exactly readily available or easy to utilise for testing etc unless you have the time and resources. This means Fundamentals investing does have a reasonable element of Opportunity Cost risk while waiting for value which does take time to confirm, your 100% correct there.




Look I have no problems with fundamentals.
My biggest issue is that the valuation is an opinion and not one which is unanimous!
If it was then there'd be no waiting only UP.




> However what studies, papers and history tells us is that well managed, financial healthy companies continue to flourish, grow and generate returns providing they continue to remain well managed and financially healthy. Everything discussed in this thread on the last few pages including the referrenced materials show that 'value' investing on a whole provides outperformance in comparison to various growth or regular indices over the long term.





Like most analysis in any field----in the right hands. Problem is in the retail sector very few succeed. Ponder this.
Im sure pretty well all traders or would be traders wouldn't have any trouble Trading/Investing 5% of their net worth---whatever that is.
But how many would trade their entire Super fund---presuming they have one.
Say $500K plus.How many would sit $100k of that super in sat RED which Ive seen valued buy many as $3.00 plus. OR PEN which I say over a $ at one time OR MAD which is another $3 stock at the moment.

Not what you'd invest in as a "Value" stock? Well according to some they have their life's savings in them.



> If I enter ABC company at X price can I 'expect' Y return based on my backtesting with fundamentals? - No. But can I make the assumption that based on other peoples findings that if I continue to invest in ABC company due to a number of widely used and accepted metrics such as ROE, D/E and Book to Market that I will over time generate better then market returns? I believe yes providing you also use risk management techniques such as investing with a Margin of Safety and being prudent with valuations



. 

I think your a bit short here.
If it drops from a bargain price you paid for it say 25% then it will need to rise 50% (Nominally) to recoup that loss. But people dont weight up THOSE METRICS.
All of a sudden a 25% drop in THEIR bank accounts mean bugger all----Strange that!



> I don't think your going to find the answer your pushing for tech/a, that the returns of fundamentals can be reasonably expected based on historical evidence of a ruleset being applied to a set of data. I believe everyone in this thread who is operating on a fundamentals basis is fine with that based on the assumption that value trumps general index's and growth index's over time. Can we prove any of our techniques are better then each others, I don't believe so unless we jump into the future 20-30 years from now and look backwards.




Not looking for an answer---planting a seed.
Va,ue only trumps indexes when you get it right.
I've seen it terribly wrong!----often and in far less than 30 yrs.
Company metrics seem so important.
Personal portfolio---what metrics?



Ves said:


> Because longer term value-investing has a lumpier equity curve compared to something like momentum investing which ideally has a much flatter equity curve.




I believe it can be flattened--A lot




> The opportunity cost of value investing is no different to that of any other form of trading of investing. You are confusing returns over a shorter time frame with total actual return.




I am?
I dont care what you trade or invest in.
If you sit there while it does nothing your not that good at it!
I sell houses when they stop increasing in value. I then keep those which are making a positive return. Ill use their equity when I find better opportunity in which to put those funds.



> If you can make a larger return over a longer time frame why would you want to make a lesser return over a number of shorter time frames just because you are missing out when the returns are flat or negative for some time windows?




Because the longer time frame doesn't have a guaranteed return.
I and most everyone else can pick a shorter term move far more often than a longer term one. "Small Fish are sweet"



> This obviously does not apply to those investors who have no business analysis skills and cannot implement a value-investing strategy.


----------



## Ves

tech/a said:


> Because the longer time frame doesn't have a guaranteed return.
> I and most everyone else can pick a shorter term move far more often than a longer term one. "Small Fish are sweet"



 I'm confused, you have gone from expected returns to talking about guaranteed returns? I used the word "if" as an explanation of "why" you might consider the opportunity cost to be worth the risk. 

You and I are both working with probabilities in the end, but over different timeframes.  The difference is that you are using a _stop loss_ to protect your capital rather than a _margin of safety_.  

Your main beef with value investing seems to revolve around the fact that you cannot _quantify_ everything. I happen to enjoy the qualitative aspects of F/A.


----------



## robusta

Late February I bought a small holding in MEF



robusta said:


> *NEW INVESTMENT*
> 
> MEF - Merricks Capital Special Opportunity Fund Limited
> 
> Bought 2976 x MEF @ $0.63 = $1874.88
> 
> MEF is the old Fat Prophets LIC (FAT) with a big change of direction.
> 
> "Merricks Capital Special Opportunity Fund Limited (Fund) is listed and trades on the Australian Stock Exchange (MEF-ASX). The current market capitalisation of the Listed Fund is approximately $30m.
> The Fund was renamed as the Merricks Capital Special Opportunity Fund at the AGM on 15 November 2010.
> On 1 August 2010, Merricks Capital commenced acting as the Manager of the Fund. On 1 October 2010, Merricks Capital and Independent Directors of the Fund announced the new investment mandate of the Fund.
> The Fund focuses on having between 3 to 10 investments at any given time.
> Generally the Fund focuses on making investments with small to mid-cap Australian listed companies.
> The types of investments that the Fund targets are:
> Obtaining a strategic stake in a desired small to medium sized listed company via placement of new securities or acquisition of securities.
> Construction of unlisted convertible securities offering equity-type returns but with debt security characteristics.
> Combining with other investors to acquire significant stakes in companies with a view to actively agitating for change, which could release hidden value to all shareholders.
> Investments that reward the provision of liquidity.
> The Fund seeks to make investments that will allow the Fund to pay regular and consistent dividends.
> The Fund is able to target sectors of the market where there is a shortage of competitors.
> The Fund also has the ability to co-invest in opportunities with Merricks Capital’s other funds."
> 
> MEF had a NTA backing in Jan @ $1.01 / share. The portfolio is very concentrated as of Janruary announcement.
> 
> 50.93% ASX listed SRQ - Straits Resources, a copper, and gold producer and explorer with some decent assets - DYOR but well worth a look.
> 
> 29.9 % digital harbour mezzanine loan, a loan to developer of a property leased by Melbourne Water (should underpin a $0.04 a share dividend for the 2012 financial year.
> 
> 12.99% ASX listed IEF - ING Real Estate Entertainment Funds, looking for a good yield here




Well today

*Increased Investment*

Bought 3174 x MEF @ $0.63

I don't want to bore you with all the geological details but today SRQ announced they drilled some holes and found some stuff.

Probably too much to expect a direct correlation between the sp of MEF and SRQ but maybe the value will shine through and a decent return will be generated.

Anyhow these guys are unloved and as such I expect a bit of disagreement on this one.


----------



## craft

Tech 

Would you like us to paint you based on how the majority implement TA?

The arrogant superior scattering his seeds of wisdom on the unwashed masses isn’t really the way to get any of your points across even if they have merit. 

You’re crashing one of the better FA threads where some real learning and honesty was present. I relish having open minded TA traders share their ideas and perspectives but tire of the TA superiority line especially by those that don’t grasp the potential of other alternatives and to be frank it is not what I expected from you.

If ignoring things that have no relevance to us and implementing time tested strategies makes us Dinosaurs then you are right I’m a dinosaur and proud of it.

As there are far more positive things to do in life then try to provide facts to someone who has already made up their mind. You can take this as my response to all your current and future posts.




sinner said:


> You know what, nevermind, f this.




Classic


----------



## tech/a

craft said:


> Tech
> 
> Would you like us to paint you based on how the majority implement TA?
> 
> The arrogant superior scattering his seeds of wisdom on the unwashed masses isn’t really the way to get any of your points across even if they have merit.
> 
> You’re crashing one of the better FA threads where some real learning and honesty was present. I relish having open minded TA traders share their ideas and perspectives but tire of the TA superiority line especially by those that don’t grasp the potential of other alternatives and to be frank it is not what I expected from you.
> 
> If ignoring things that have no relevance to us and implementing time tested strategies makes us Dinosaurs then you are right I’m a dinosaur and proud of it.
> 
> As there are far more positive things to do in life then try to provide facts to someone who has already made up their mind. You can take this as my response to all your current and future posts.
> 
> 
> 
> 
> Classic




Again OK 
I'll no longer answer posts
In this thread.Including points in yours


----------



## skc

robusta said:


> Late February I bought a small holding in MEF
> 
> 
> 
> Well today
> 
> *Increased Investment*
> 
> Bought 3174 x MEF @ $0.63
> 
> I don't want to bore you with all the geological details but today SRQ announced they drilled some holes and found some stuff.




According to WebIress, MEF had 28.54m shares on issue.

MEF reported NTA was $1 per share (at 31 March)... putting total investment portfolio size at $28-29m.

As far as I see they have no debt.

On SRQ's WebIress info, MEF holds 17.33% or 69.7m shares in SRQ.

On 31 March, SRQ closed ~60c. So MEF's holding alone is worth $42m.

MEF supposed to represent 50% of investment portfolio.

So one or more of these numbers are wrong. 

Do you know which one(s)? Thanks


----------



## craft

skc said:


> According to WebIress, MEF had 28.54m shares on issue.
> 
> MEF reported NTA was $1 per share (at 31 March)... putting total investment portfolio size at $28-29m.
> 
> As far as I see they have no debt.
> 
> On SRQ's WebIress info, MEF holds 17.33% or 69.7m shares in SRQ.
> 
> On 31 March, SRQ closed ~60c. So MEF's holding alone is worth $42m.
> 
> MEF supposed to represent 50% of investment portfolio.
> 
> So one or more of these numbers are wrong.
> 
> Do you know which one(s)? Thanks




Merricks Capital is a larger animal.

MEF is just one holding/associate - It has 22.5m shares


----------



## skc

craft said:


> Merricks Capital is a larger animal.
> 
> MEF is just one holding/associate - It has 22.5m shares




I see. Thanks. 

Looks like Merricks Capital Pty Ltd (MCPL) holds 20.39% of MEF which is a special opportunity fund.

I assume the 69.7m odd SRQ shares owned by MCPL includes those owned under MEF.


----------



## robusta

*New Investment*

PET - Peters Macgregor Investments

Bought 4000 @ $0.78 = $3120.00

The liquidity on this one is almost trade by appointment, I moved the sp 4% today all on my own. Have been looking to buy for 3 weeks now and actually picked some up for my super earlier this month at $0.725, at the time all my spare cash was with the QBE spp.
Anyway since then the latest monthly NTA announcement jumped from $1.0222 to $1.0931 after tax, my bid has constantly been outbid at higher volume and I missed 5000 shares @ $0.75 with my bid @ $0.745

But so much for the negatives I am very happy to finally have a piece of this one and I like the investment strategy and the holdings within this LIC - also still at a decent discount to NTA.

Wayne Peters is the chief investment officer, they also run a managed fund with as far as I can see parallel portfolios.

Anyway here is the investment philosophy.

http://www.petersmacgregor.com/about-philosophy.php

I like the way, the look at value, for example they bought BP in the middle of the oil spill disaster also Bank of America around $7.00.

Here is the most recent investment report

http://www.petersmacgregor.com/2012 March IMA Report.pdf

Top five holdings;

Michael Hill International - yes the jeweler!! Take a look at the cash flow, not much debt...

Berkshire Hathaway - have always wanted a piece of this one, just a cash generating machine.

Fairfax Financial - Another brilliant capital allocator at this insurance conglomerate a bit like BRK with more room to grow IMO.

Asta Funding - Americas version of Credit Corp

Bank of America - bought about a month before Buffet started buying.

I do not expect this one to shoot the lights out but a nice 10% CAGR of net tangible assets per share is more likely than not in my opinion, if that can be achieved I don't care what the share price does.


----------



## herzy

Just wanted to thank you Robusta for the absolutely fantastic thread. Please keep it up! All the best.


----------



## Huskar

Out of interest how do you find these amazing little companies Robusta? Are you doing a screen of LICs or similar?


----------



## tech/a

Robusta

This has an average of around $12,500 a day traded?
You allowed yourself 3c slippage to buy?? And were the only trade for the day.
Look I know your having a go and doing your best but--
Sorry I really shake my head.





This is an OST chart I posted on the OST thread 25/03/12


Still trading it.


----------



## robusta

You are probably right, however some silly bastard has a order at the moment at $0.77 and that is not filled, probably the same person who continually outbid me until I lost patience.


----------



## robusta

tech/a said:


> Robusta
> 
> This has an average of around $12,500 a day traded?
> You allowed yourself 3c slippage to buy?? And were the only trade for the day.
> Look I know your having a go and doing your best but--
> Sorry I really shake my head.




Well I had been trying to buy since the 6/4 since then (cant be bothered working out how many trading days that is) there have been two days that the stock has traded, 5000 shares @ $0.75 on the 13th (I had my bid at the time at $0.745 and my purchase of 4000 shares @ $0.78, now there is about 30,000 bid @ $0.77, the offer is still $0.78. 

Have to admit I never look at the daily average, I think I will start looking now.





tech/a said:


> This is an OST chart I posted on the OST thread 25/03/12
> View attachment 46799
> 
> Still trading it.




Thank you for the OST chart, you must be smarter than me to make money this way, it is all I can do to find businesses that I think will be making more money in the future than now - OST is not on my list.

Sold MEF today and bought some more TGA, I will post the numbers up after dinner.


----------



## Ves

robusta said:


> Well I had been trying to buy since the 6/4 since then (cant be bothered working out how many trading days that is) there have been two days that the stock has traded, 5000 shares @ $0.75 on the 13th (I had my bid at the time at $0.745 and my purchase of 4000 shares @ $0.78, now there is about 30,000 bid @ $0.77, the offer is still $0.78.
> 
> Have to admit I never look at the daily average, I think I will start looking now.



 I am watching a few that are testing my patience, one of them didn't trade for nearly two weeks at one point! (Although, it has traded most days for the last two weeks...) They can move really fast (in either direction), but usually it is wise to wait for your entry point because they never go far unless there is some sort of news. I don't think you enter low volume stocks unless you have a very good reason to enter and don't want think you will have reason to get caught in a stampede when everyone hits the exits at once.


----------



## robusta

Ves said:


> I don't think you enter low volume stocks unless you have a very good reason to enter and don't want think you will have reason to get caught in a stampede when everyone hits the exits at once.




This is probably one of the reasons I sold MEF today,

*Investment Sold*

5000 x MEF @ $0.69
400   x MEF @ $0.695

Picked up the first smaller parcel of MEF because of the large discount to NTA and to be honest the conviction these guys show to have 50% of the portfolio in one stock (SRQ).

The second parcel was because I saw SRQ share price shoot up and MEF had no change at all. Well the price has corrected and I no longer wish to have such a large exposure. Bit less than 10% gain is probably not enough compensation for the risk taken but happy to take the small profit.

*Investment Increased*

Bought 1074 x TGA @ $1.395

Enough probably said on the TGA thread, I really like the reoccurring revenues.


Lots of action in the portfolio this month, have taken some profits however and have a nice percentage of funds in cash to look for a home.

Have to stop paying the broker so much.


----------



## tech/a

robusta said:


> This is probably one of the reasons I sold MEF today,
> 
> *Investment Sold*
> 
> 5000 x MEF @ $0.69
> 400   x MEF @ $0.695
> 
> Picked up the first smaller parcel of MEF because of the large discount to NTA and to be honest the conviction these guys show to have 50% of the portfolio in one stock (SRQ).
> 
> The second parcel was because I saw SRQ share price shoot up and MEF had no change at all. Well the price has corrected and I no longer wish to have such a large exposure. Bit less than 10% gain is probably not enough compensation for the risk taken but happy to take the small profit.
> 
> *Investment Increased*
> 
> Bought 1074 x TGA @ $1.395
> 
> Enough probably said on the TGA thread, I really like the reoccurring revenues.
> 
> 
> Lots of action in the portfolio this month, have taken some profits however and have a nice percentage of funds in cash to look for a home.
> 
> Have to stop paying the broker so much.





Robusta you really love buying the falling knife??


----------



## robusta

tech/a said:


> Robusta you really love buying the falling knife??




Well I guess if something I want gets cheap enough my first reaction is to look to buy.


----------



## robusta

PORTFOLIO UPDATE[/B]

Lots of action in the portfolio this month.

Picked up 15 QBE shares in the spp for $160.50 bringing the total investment to $2160.35, sold for $2752 so a capital gain of $591.65
Had $3821.44 invested in CCP, sold for $4981.51, capital gain is $1160.08
Bought some more MEF for $1999.62 to add to the  $1874.88 holding, sold the lot for $4245.25 capital gain of $370.75.

This brings my capital losses to date down to $1832.95, paid $151.26 to the bank in interest to bring this total to $2017.51 plus $139.65 to the broker for a way to large sum of $538.30

$211.24 in dividends bought the income up to $884.81

So that is a loss of $3503.95

Better have a look at where the open positions are

Open Positions
Bought:
1115    x MTU    @   $2.62      =    $2921.30        08/08/11
65       x COH     @   $45.85    =    $2980.25        30/09/11
1373   xOKN       @ $1.455      =    $1997.72        23/11/11
916 x PRV          @ $0.655      =    $599.98          25/01/12                                                                                                                                      
1023 x NVT        @ $2.93        =    $2997.39        02/02/12           
972 x TGA          @ $1.505          =$1462.86        05/04/12
4000 x PET         @ $0.78           =$3120.00        20/04/12
1074 x TGA         @$1.395          =$1498.23        26/04/12

Subtotal      $ 17,577.76

Current Portfolio Position

65        x COH       @$64.35  =$4182.75
1115    x MTU       @ $3.63  = $4036.30
278     x MTUR      @ $0.40  = $111.20
1023 x NVT          @ $3.81 = $3897.63
1373  x OKN         @$1.315   = $1805.50
4000 x PET           @$0.78  =$3120.00
916    x PRV         @$0.645 = $590.82
2046  x TGA          @ $1.45=$2966.70

Subtotal = $20,142.25

Cash contributed $1650.00 

This brings the total loss considering the open positions to $939.46

Return on contributed equity (by me not the bank) is around -43%, the good news for me is I finally have some positive equity in this portfolio and out of the original $30,000 LOC have $10,347.76 available to invest.

Bring on the volatility.


----------



## robusta

Probably should highlight Thorn Group and Peters MacGregor Investments were added this month among that flurry of activity.


----------



## robusta

Missed the OKN dividend in the above update, $75.52 brings the total dividends to $960.33.

This is how I track this portfolio by the way, no expense spared on software:

At the end of the financial year I will reconcile with bank and broker statements and correct any errors.


----------



## tech/a

robusta said:


> Well I guess if something I want gets cheap enough my first reaction is to look to buy.




Well with a - 43% return on capital you may consider how successful this idea is.

Doing the same thing day in and day out and expecting a DIFFERENT result is often not that productive.


----------



## Klogg

tech/a said:


> Well with a - 43% return on capital you may consider how successful this idea is.
> 
> Doing the same thing day in and day out and expecting a DIFFERENT result is often not that productive.




Yes, but he only started in July. Given that FA is closely related to the earnings of a company and these are reported every 6months, you'd need to watch it over a longer term.

But I do agree that if that sort of return were to continue, there are some serious issues there.


----------



## tech/a

Klogg said:


> Yes, but he only started in July. Given that FA is closely related to the earnings of a company and these are reported every 6months, you'd need to watch it over a longer term.
> 
> But I do agree that if that sort of return were to continue, there are some serious issues there.




How might he improve return ?

(1) Have some stop loss conditions.
(2) Have some position sizing conditions
(3) Have some filtering introduced. (Index either whole index or group or both)
(4) Look at Equity curve filter.
(5) Look at entry timing conditions.

As a few ideas. I cant see why these cant be introduced into Robustas fundamental method.


----------



## Klogg

tech/a said:


> How might he improve return ?
> 
> (1) Have some stop loss conditions.
> (2) Have some position sizing conditions
> (3) Have some filtering introduced. (Index either whole index or group or both)
> (4) Look at Equity curve filter.
> (5) Look at entry timing conditions.
> 
> As a few ideas. I cant see why these cant be introduced into Robustas fundamental method.




A good suggestion and probably worth looking into whether they fit with his approach.

From my experience, a stop-loss is very hard to use with FA. I don't personally use one, but there are others ofcourse who are comfortable with them.

Thanks tech.


----------



## robusta

tech/a said:


> Robusta
> 
> This has an average of around $12,500 a day traded?
> You allowed yourself 3c slippage to buy?? And were the only trade for the day.
> Look I know your having a go and doing your best but--
> Sorry I really shake my head.




Sorry to bring this up again, but what do your charts say abou PET now?



tech/a said:


> Well with a - 43% return on capital you may consider how successful this idea is.
> 
> Doing the same thing day in and day out and expecting a DIFFERENT result is often not that productive.




Actually I think I may have missed some costs, probably closer to -90%, anyway it is leveraged results will vary. I am confident the returns will come.



tech/a said:


> How might he improve return ?
> 
> (1) Have some stop loss conditions.




I want to buy low and sell high, so if I own something (almost by definition I think it is cheap if I hold) and the price falls, the two options are buy more or hold, all things equal. *Not sell.*



tech/a said:


> (2) Have some position sizing conditions




Lots of drama for me in the past on this issue. Page 6 of this thread, since then I have been fairly happy.



tech/a said:


> (3) Have some filtering introduced. (Index either whole index or group or both)




I filter for high ROE, low debt/equity, good earnings history...



tech/a said:


> (4) Look at Equity curve filter.




You taught me something here tech, I had to look it up. Started reading about buying when price crosses over the moving average and looking for reoccurring patterns and I thought it was all to difficult.

Much simpler for me to look at a business, work out a estimation of value and quality then buy if the quality is good good enough and the price is cheap enough.



tech/a said:


> (5) Look at entry timing conditions.




Sorry I am no good at timing, will just have to learn to give my investments time.


----------



## slooi1

robusta said:


> Sorry I am no good at timing, will just have to learn to give my investments time.




I'm normally a lurker and don't post much - but thought I'd jump in here as well.
First of all, I think Robusta is an extremely brave chap to put his investing and trading history on this board for all to see and critique - that'd be quite a hard move for most of us I reckon.

Robusta has fundamental analysis view based on ROE and growing earnings which provides a set of filtered companies to purchase at the right prices. That's a great starting point. It gives a higher probability of success, and a margin of safety.

My concern is this. Having identified the companies, from what I've read in the board posts to date is it appears that Robusta is merely trading the companies based on which one has a bigger discount to the intrinsic value. This means that technical analysis and market entry/timing is of importance to ensure that the great entry and exit prices. Because the trades are short term (< 1 year) - he's more likely to get his gains from the movement of prices based on sentiment, than any movement in prices based on changing intrinsic value (which I see as growing slowly over many years - barring major company changing events).

I believe a learning is really for Robusta to focus on market entry and market timing. Both fundamental and technical analysis is important, especially if he plans on trading companies. If however, the plan is to buy and hold for a longer period (1+ years), market timing is less relevant in my opinion.

I myself am a fundamental investor, but always keep an eye on the price action / volumes etc to ensure I'm getting the best bang for my buck.

slooi1


----------



## sammy84

robusta said:


> Sorry to bring this up again, but what do your charts say abou PET now?




It went up 2% on average volume. I wouldn't be getting ahead of myself.


----------



## burglar

sammy84 said:


> It went up 2% on average volume. I wouldn't be getting ahead of myself.




Agree with you sammy, A cute lil tree-frog crowing at a talking duck!

Sorry robusta, I could not help myself *giggle*


----------



## skc

sammy84 said:


> It went up 2% on average volume. I wouldn't be getting ahead of myself.




The problem with something like PET is that, if there's something wrong, you can expect horrible slippage on exit because of the lack of liquidity. It's like staying in an overseas hotel with no fire escape. It's cheap and doesn't really matter if nothing goes wrong. But if there's a fire...

And the fact that with something like PET, you can't really expect it to outperform your interest cost by more than a few percent over the long run... which happens to be your entry/exit spread.


----------



## robusta

sammy84 said:


> It went up 2% on average volume. I wouldn't be getting ahead of myself.




Tech/a seemed to imply that my entry price ($0.03 above the last traded price) was inept of maybe even stupid. I was trying to point out that since then more shares have traded at my entry price and some even higher since that date.



burglar said:


> Agree with you sammy, A cute lil tree-frog crowing at a talking duck!
> 
> Sorry robusta, I could not help myself *giggle*




LOL, you think I am cute?

If I wanted to crow COH and NVT are a fair percentage up but the only price that will matter to me is the one I sell at - hopefully a long time into the future.


----------



## robusta

slooi1 said:


> I'm normally a lurker and don't post much - but thought I'd jump in here as well.
> First of all, I think Robusta is an extremely brave chap to put his investing and trading history on this board for all to see and critique - that'd be quite a hard move for most of us I reckon.




It helps to have a crazy (some would say delusional) confidence that given time positive returns will be generated.



slooi1 said:


> Robusta has fundamental analysis view based on ROE and growing earnings which provides a set of filtered companies to purchase at the right prices. That's a great starting point. It gives a higher probability of success, and a margin of safety.
> 
> My concern is this. Having identified the companies, from what I've read in the board posts to date is it appears that Robusta is merely trading the companies based on which one has a bigger discount to the intrinsic value. This means that technical analysis and market entry/timing is of importance to ensure that the great entry and exit prices. Because the trades are short term (< 1 year) - he's more likely to get his gains from the movement of prices based on sentiment, than any movement in prices based on changing intrinsic value (which I see as growing slowly over many years - barring major company changing events).
> 
> I believe a learning is really for Robusta to focus on market entry and market timing. Both fundamental and technical analysis is important, especially if he plans on trading companies. If however, the plan is to buy and hold for a longer period (1+ years), market timing is less relevant in my opinion.
> 
> I myself am a fundamental investor, but always keep an eye on the price action / volumes etc to ensure I'm getting the best bang for my buck.
> 
> slooi1




I have to agree with you regarding the amount of trading to date, in the future I plan to rectify this.

COH, NVT, PET I regard as core holdings and plan to hold for the long term, having said that if the price rises past my estimation of IV selling may be a consideration.

MTU, TGA, OKN and PRV have the opportunity of being long term holds if the returns are satisfactory.

Opportunities like QBE I will take as they come but I am not sure how TA would improve my entry and exit.


----------



## robusta

skc said:


> The problem with something like PET is that, if there's something wrong, you can expect horrible slippage on exit because of the lack of liquidity. It's like staying in an overseas hotel with no fire escape. It's cheap and doesn't really matter if nothing goes wrong. But if there's a fire...
> 
> And the fact that with something like PET, you can't really expect it to outperform your interest cost by more than a few percent over the long run... which happens to be your entry/exit spread.




Should be no surprise I disagree on this one SKC. I would expect a minimum 10% CAGR, but probably closer to 15% on NTA, the sp should follow and even close the discount to NTA on these positive results, also a nice little franked dividend while I wait.


----------



## Ves

I won't pretend I am interested in LICs, but I think it is better to focus not on the current gap between share price and NTA, but the historical average discount to NTA that it trades on.  Robusta, do you know the long-term average discount of PET's share price to NTA?  This would most likely fluctuate during the market cycle, of course. Probably handy to figure out where it is at the moment.  Best to buy when this the current NTA discount is greater than the average by a reasonable margin; if you think the LICs investments are sound.


----------



## skc

robusta said:


> Should be no surprise I disagree on this one SKC. I would expect a minimum 10% CAGR, but probably closer to 15% on NTA, the sp should follow and even close the discount to NTA on these positive results, also a nice little franked dividend while I wait.




Based on Comsec, total shareholder return (TSR) for PET is:
1 yr = 2.7% p.a.
3 yr = 14% p.a.
5 yr = -2.7% p.a.

And here are some examples of 10-yr TSR of other LICs:
AFI = 7.9%  
MLT = 7.2%
ARG = 6.2%
DJW = 7.1%
WAM = 8.0%
AUI = 6.8%

There isn't a lot left after paying 6-7% interest on your loan. IMO the majority of LICs only offer great return for the management team, and is a relatively lazy way to "value invest". 

Anyway, plenty of good information on the ASX website on LICs.

The LIC index (slightly negative since 2006) 
http://www.asx.com.au/products/listed-investment-companies-index.htm

Qtrly report by Bell Potter
http://www.asx.com.au/documents/products/Bell_Potter_LIC_Report_December_2011.pdf


----------



## McLovin

Ves said:


> I won't pretend I am interested in LICs, but I think it is better to focus not on the current gap between share price and NTA, but the historical average discount to NTA that it trades on.  Robusta, do you know the long-term average discount of PET's share price to NTA?  This would most likely fluctuate during the market cycle, of course. Probably handy to figure out where it is at the moment.  Best to buy when this the current NTA discount is greater than the average by a reasonable margin; if you think the LICs investments are sound.




I agree. Wasn't this discussed recently in this thread or a very smilar one?


----------



## odds-on

skc said:


> There isn't a lot left after paying 6-7% interest on your loan. IMO the majority of LICs only offer great return for the management team, and is a relatively lazy way to "value invest".




Agree lazy but it is also simple! A simple strategy is an advantage. Have some spare cash, buy LIC X when at Y% discount to NTA. Repeat.

I saw on the RM blog that he is going to start a retail fund. Any takers? Skc? Robusta? McLovin?...........................perhaps Craft?


----------



## robusta

*New Investment*

Collins Foods Limited

Bought 1896 shares @ $1.055 = $2000.28

CKF listed around $2.50 recently and have been absolutely hammered on a profit downgrade. Things don't look that bad unless Queenslanders are going to give up KFC.

This is a bit of a departure from the high ROE stocks in the portfolio but the dividend should more than cover my cost of money and the growth should provide a nice margin on top of inflation.

Population growth will also give these guys a nice little kick along, hell I would love to live in Queensland if it wasn't so full of Queenslanders.


----------



## Ves

robusta said:


> This is a bit of a departure from the high ROE stocks in the portfolio but the dividend should more than cover my cost of money and the growth should provide a nice margin on top of inflation.



Curious, do you know what pay-out ratio and forecast dividend for 2012?  I looked at this stock late last year, but have found better opportunities so far.  Looks interesting still. Another profit downgrade and it could be under $1.


----------



## robusta

Ves said:


> Curious, do you know what pay-out ratio and forecast dividend for 2012?  I looked at this stock late last year, but have found better opportunities so far.  Looks interesting still. Another profit downgrade and it could be under $1.




You know what? I have no idea, I imagine in this type of business somewhere either side of a third of profits will be retained for costs and growth and the remainder will be paid to us as owners.

Another downgrade and it will be earning 14 to 16 cents per share, may pick up some more if the price is right.


----------



## StumpyPhantom

robusta said:


> You know what? I have no idea, I imagine in this type of business somewhere either side of a third of profits will be retained for costs and growth and the remainder will be paid to us as owners.
> 
> Another downgrade and it will be earning 14 to 16 cents per share, may pick up some more if the price is right.




Is there any hurry to pick up the stock?  All it's technical indicators are still pointing downward in circumstances where the fundamentals don't appear to be capable of a quick about-face in the current macro economic environment.

Or am I missing something?


----------



## Ves

StumpyPhantom said:


> Is there any hurry to pick up the stock?  All it's technical indicators are still pointing downward in circumstances where the fundamentals don't appear to be capable of a quick about-face in the current macro economic environment.
> 
> Or am I missing something?



Not at all.  Hence why I have not been in any rush to even look at it properly for the time being.


----------



## McLovin

Ves said:


> Not at all.  Hence why I have not been in any rush to even look at it properly for the time being.




I'm with you. As I said over in the CKF thread, management either lied or was incompetant. They were sold as a defensive investment and yet they have been anything but that. Considering they are apparently running the business on the smell of an oily rag and still might not make their revised profit, you do have to wonder.

The falling revenue is a concern. Especially given the way the company was sold to investors.


----------



## McLovin

odds-on said:


> I saw on the RM blog that he is going to start a retail fund. Any takers? Skc? Robusta? McLovin?...........................perhaps Craft?




craft is the number one ticket holder at RM Co.


----------



## Ves

McLovin said:


> craft is the number one ticket holder at RM Co.



Yeah, he got offered a job there, didn't you hear? That's why he hasn't been posting? :


----------



## tinhat

Ves said:


> Curious, do you know what pay-out ratio and forecast dividend for 2012?  I looked at this stock late last year, but have found better opportunities so far.  Looks interesting still. Another profit downgrade and it could be under $1.




Reuters Thompson consensus forecasts (four analysts):

2012
EPS 19.3c
Dividend 5cps (no franking credits)


2013
EPS 19.7c
Dividend 9c (no franking credits)

Works out to a yield of 8.53% at today's close of $1.055


----------



## craft

McLovin said:


> craft is the number one ticket holder at RM Co.






Ves said:


> Yeah, he got offered a job there, didn't you hear? That's why he hasn't been posting? :




You guys trying to bait me. 

Current job is real cushy and the boss is freakin awesome – can’t see me ever working for a sales Muppet. Besides Muppets don’t hire people who call them Muppets – it’s bad for their image and when you don’t have substance, image is everything.


----------



## robusta

StumpyPhantom said:


> Is there any hurry to pick up the stock?  All it's technical indicators are still pointing downward in circumstances where the fundamentals don't appear to be capable of a quick about-face in the current macro economic environment.
> 
> Or am I missing something?




Why now?

Very simple answer, the market offered me a price I was prepared to pay.

Don't know anything about technical indicators or quick changes in the macro economic environment but if I am offered a price ten percent plus cheaper I may consider adding to the position.


----------



## Ves

tinhat said:


> Reuters Thompson consensus forecasts (four analysts):
> 
> 2012
> EPS 19.3c
> Dividend 5cps (no franking credits)
> 
> 
> 2013
> EPS 19.7c
> Dividend 9c (no franking credits)
> 
> Works out to a yield of 8.53% at today's close of $1.055



 Interestingly, that is a P/E of between 5 and 6 if those numbers are realised.  They will pay out fully franked dividends when they have paid more tax and built up the franking account, I assume.


----------



## McLovin

Ves said:


> Interestingly, that is a P/E of between 5 and 6 if those numbers are realised.  They will pay out fully franked dividends when they have paid more tax and built up the franking account, I assume.




Which is about where I said I'd become interested. I have been looking at it over the last couple of week but I just don't like the fact that they are still revising down their sales numbers.


----------



## Ves

McLovin said:


> Which is about where I said I'd become interested. I have been looking at it over the last couple of week but I just don't like the fact that they are still revising down their sales numbers.



 I agree - and without looking at financials, if you take a margin for error of about 20% for the forecast earnings per share you get around 15.5eps.

Multiply this by a preferrential P/E 5 and you get $0.775.  By 6 and you get $0.93.

Pure back of the envelop type stuff and shouldn't be taken for real business analysis, but you get the picture. I think at these levels it would definitely be worth an in-depth look, despite the seemingly poor management, it should at least grow at inflation unless they do something catastrophically wrong (like take on massive amounts of debt and go on a dillutive acquisition binge).

Certainly wouldn't through large amounts of money at it in event.


----------



## robusta

Just a question on the profit downgrades, does anyone think this is permanent or cyclical?

My money is obviously on the latter.


----------



## McLovin

robusta said:


> Just a question on the profit downgrades, does anyone think this is permanent or cyclical?
> 
> My money is obviously on the latter.




Cylical, IMO. I spoke to a guy who sells franchises a few months ago. He told me KFC, Dominos and McDs are the only franchises that are making more than "buying a wage" for their franchisees.

The only thing that I worry about in holding out is the Polous family have already shown they have an interest, if this sucker keeps going down they might take the thing out.


----------



## Ves

tinhat said:


> Reuters Thompson consensus forecasts (four analysts):
> 
> 2012
> EPS 19.3c
> Dividend 5cps (no franking credits)
> 
> 
> 2013
> EPS 19.7c
> Dividend 9c (no franking credits)
> 
> Works out to a yield of 8.53% at today's close of $1.055



 I actually had a bit of a read of the prospectus this afternoon.

They anticipate to pay out 50% of earnings and it will be a fully-franked dividend.


----------



## craft

I can see the value in KFC not so sure about sizzler. Problem I have with CKF is its financial structure, it only takes 1 bad cycle to wipe out an ownership structure and all future earnings go to somebody else.

NTA are way less then bank debt. Of those NTA’s a large proportion are leasehold improvements which are worthless out of context.  They don’t own their own property so they have a large fixed cost in operating leases and I have no idea if royalties are fixed or variable or some combination.

Banks are already skittish and it wouldn’t take much to make that situation worse. What are the loan covenants, when are the loans due to be rolled?

Labour and property utilisation must suffer with declining revenue and I would imagine food wastage would be more of an issue if sales aren’t predictable. Management don’t have much control over the major costs or the macro factors that drive revenue. Junk food is discretionary and competition (Mc Donalds) has huge ability to squeeze margin in tight market if they wish. 

If they can’t pay their interest on the Bank debt of 105Million after paying the operating leases and other fixed costs that they are exposed to, then well it’s not pretty. 

Then there’s the little issue of deprecation n vs Capital spend mainly on lease improvements to keep the offering fresh, lots of scope to manage an accounting number here that may vary from the economic reality – for a while, but it won’t help cash flow over time and cash pays bills.

P/E is immaterial. Wake me when there is some certainty about revenue recovering or the balance sheet is fixed – one of the two has to happen, if it’s the latter and its left too long, it may not be possible or require massive dilution. 

Probably not the sort of stock I would buy with LOC funds unless you are sure about an imminent rebound in revenue. This one whilst having good upside potential with so much leverage in the financial structure also has real risks of permanent loss of capital.


----------



## skc

craft said:


> Then there’s the little issue of deprecation n vs Capital spend mainly on lease improvements to keep the offering fresh, lots of scope to manage an accounting number here that may vary from the economic reality – for a while, but it won’t help cash flow over time and cash pays bills.
> 
> P/E is immaterial. Wake me when there is some certainty about revenue recovering or the balance sheet is fixed – one of the two has to happen, if it’s the latter and its left too long, it may not be possible or require massive dilution.
> 
> Probably not the sort of stock I would buy with LOC funds unless you are sure about an imminent rebound in revenue. This one whilst having good upside potential with so much leverage in the financial structure also has real risks of permanent loss of capital.




I am with you there Craft. The balance sheet looks as unhealthy as a fried chicken diet. My  on the CKF thread
https://www.aussiestockforums.com/forums/showthread.php?t=23212&p=701823&viewfull=1#post701823

Not a completely hopeless turnaround candidate, but not yet fundamentally imo. 
And a general rule of thumb for me... buy low PE when the E is going up (and consequently pushes the P up to restore a more normal PE), rather than a situation where P is falling faster than E (which can result in a more normal PE being restored by E falling further).


----------



## Ves

Thanks craft - great summary of the issues to look out for in the annual report for those interested (or already holding).

edit: As the old adage goes, the franchisor makes more money than the franchisee.


----------



## McLovin

Thanks craft and skc.

I think I've been a bit lazy on this one, need to do a lot more research.


----------



## So_Cynical

Ves said:


> edit: As the old adage goes, the franchisor makes more money than the franchisee.




I've never heard of a franchisor that was *successful* selling franchise's that didn't make franchisees money.

Yes i know there are some franchisees (Wendy's some pizzas) that have been unsuccessful, but that's at the margins...Collins is a 43 year old business.


----------



## Ves

So_Cynical said:


> I've never heard of a franchisor that was *successful* selling franchise's that didn't make franchisees money.



 The commercial world is littered with franchises that are sold to people with promises of riches. Yet the reality is that in most cases you do not earn enough to justify the initial investment. Most franchises require a lot of toil, a large upfront capital injection (and ongoing royalties and license fees) for slightly better, and in some cases the exactly the same result as they could achieve by working for a wage. McLovin named the ones where you may hope to do better than this. Of course, you still make a living and there is the comfort of a proven idea, but buying a franchise means that you will certainly not have the margins, high ROE and therefore higher profitability of the franchisor.  Why would a franchisor sell you their idea and pass on their profitability at the same time?

edit:  Yum Brands current figures indicate that they have a return on equity of 70% and a return on capital of 30%.   You cannot seriously be telling me that if you bought a KFC franchise off them that you'd achieve the same results?


----------



## McLovin

Vespuria said:
			
		

> The commercial world is littered with franchises that are sold to people with promises of riches. Yet the reality is that in most cases you do not earn enough to justify the initial investment. Most franchises require a lot of toil, a large upfront capital injection (and ongoing royalties and license fees) for slightly better, and in some cases the exactly the same result as they could achieve by working for a wage.




Just check out Yum!'s (any spelling experts know how to treat that possesive apostrophe with the exclaimation mark?) RoE. It's over 100%.

ETA: I missed your ETA about Yum!, my numbers were a bit over. Yours are correct.


----------



## Ves

McLovin said:


> Just check out Yum!'s (any spelling experts know how to treat that possesive apostrophe with the exclaimation mark?) RoE. It's over 100%.



 Yup, see my edit.  It's actually lower than it once was. But they are still growing at a rapid rate.  You can barely notice the GFC blip on their stock price chart.  It's a damn shame Australia doesn't have the scope to have big international franchise businesses like these of our own.

I am actually surprised by the amount of debt that Yum has on their balance sheet.  I guess their cash flow well and truly covers it, so they can afford to leverage to the hilt.


----------



## CanOz

The bulk of Yum's growth is coming from China. They're adding a new store here every 22 hours. It's an amazing business, with the stores retailing a variety of healthy, tasty, local favors. 

CanOz
Btw, only a tiny fraction of their stores are franchised. They own 95+% of their stores in China.


----------



## McLovin

CanOz said:


> The bulk of Yum's growth is coming from China. They're adding a new store here every 22 hours. It's an amazing business, with the stores retailing a variety of healthy, tasty, local favors.
> 
> CanOz
> Btw, only a tiny fraction of their stores are franchised. They own 95+% of their stores in China.




I went to a Pizza Hut in China recently. It's completely different to anything in the West. The restaurants aren't just about Pizza and they're more upper-middle class than in other countries (they have a great selection of French wine for instance).


----------



## CanOz

McLovin said:


> I went to a Pizza Hut in China recently. It's completely different to anything in the West. The restaurants aren't just about Pizza and they're more upper-middle class than in other countries (they have a great selection of French wine for instance).




Yeah, they're nice restaurants. It's a model that looked doomed to fail when they started but they knew what they were doing. As the middle class expanded, their restaurants became busier and more successful.

There's a great book about KFC in China, by the same title.

CanOz


----------



## Ves

CanOz said:


> The bulk of Yum's growth is coming from China. They're adding a new store here every 22 hours. It's an amazing business, with the stores retailing a variety of healthy, tasty, local favors.
> 
> CanOz
> Btw, only a tiny fraction of their stores are franchised. They own 95+% of their stores in China.



 Thanks for that, I actually didn't know that for certain.  It makes sense though, in an emerging market if you have the nous to implement a business model you will make more money by cutting out the middle man (the franchisee). I also wonder if the Chinese have an appetite for owning a franchise? I am not really familiar with their culture to be honest. It will be interesting to see how Yum's strategy in this respect develops when China's middle class, and business world progresses even further.


----------



## McLovin

Ves said:


> I am actually surprised by the amount of debt that Yum has on their balance sheet.  I guess their cash flow well and truly covers it, so they can afford to leverage to the hilt.




The debt probably goes a fair way to explaining the RoE. But even taking something like EBIT/Assets, return is still ~20.


----------



## Ves

McLovin said:


> The debt probably goes a fair way to explaining the RoE. But even taking something like EBIT/Assets, return is still ~20.



 Last quarter McDonalds (MCD) reported 38% ROE.  It's debt-to-equity is 87% compared to 146% on YUM.

The additional leverage definitely inflates the ROE as it should.

MCD's ROIC is 20.7% and YUM's ROIC is 29.4% according to Forbes.  This indicates to me that they are making returns way above the cost of capital.


----------



## craft

Ves said:


> I am actually surprised by the amount of debt that Yum has on their balance sheet.  I guess their cash flow well and truly covers it, so they can afford to leverage to the hilt.




Debt to equity is really not a very useful measure.

Debt servicing ratios are far more informative. 

Debt to market cap is sometimes used in Bank Covenants. Compare YUM to CKF on that measure for some enlightenment.

ps.

Good to see somebody using ROIC - far more informative then ROE. Equity has so many cumulative accounting adjustments that any ratio based on it is normally bogus. Not to mention non-comparable between different financial structures.


----------



## McLovin

craft said:


> Debt to equity is really not a very useful measure.
> 
> Debt servicing ratios are far more informative.




I agree on this completely. Debt/equity tells you nothing about capacity to pay. In discussing bonds Ben Graham always stressed not to look at what assets secure the bond issue but rather what is the ability of the company to pay the interest bill. Debt/equity is probably somewhat outdated. It was formulated at a time when most companies were still very capital intensive (manufacturing/railroads/shipping etc). For an equity light company it can often make the company appear to be overindebted.

IMO, anyway.


----------



## Ves

craft said:


> Good to see somebody using ROIC - far more informative then ROE. Equity has so many cumulative accounting adjustments that any ratio based on it is normally bogus. Not to mention non-comparable between different financial structures.



Just as an aside to this,  how do you usually calculate ROIC?

For a basic overview I normally use something like  NPAT   /   Total Assets - Cash at Bank - Non-interest bearing current liabilities.

I believe that there is a whole discussion around just what to include in the invested capital component.


----------



## sinner

craft said:


> Debt servicing ratios are far more informative.




Can you give some examples? 

I found one on wikipedia "Debt service coverage ratio"...but I thought Interest Cover was the commonly used one.


----------



## McLovin

sinner said:


> Can you give some examples?
> 
> I found one on wikipedia "Debt service coverage ratio"...but I thought Interest Cover was the commonly used one.




Cash-flow-to-debt is the only other one I know of.

You can expand interest cover to include all fixed charges.


----------



## craft

sinner said:


> Can you give some examples?
> 
> I found one on wikipedia "Debt service coverage ratio"...but I thought Interest Cover was the commonly used one.




Net interest cover (EBIT/Interest Expense) is the most commonly reported.

Gross debt/ Cash flow are Net debt/Cash flow are also common. 

But you can come up with anything you like.  The emphasis should be on cash flow to service the debt. 

Debt generally gets repaid from excess cash flow not assets.  – especially if the assets are intangible.


----------



## craft

Ves said:


> Just as an aside to this,  how do you usually calculate ROIC?
> 
> For a basic overview I normally use something like  NPAT   /   Total Assets - Cash at Bank - Non-interest bearing current liabilities.
> 
> I believe that there is a whole discussion around just what to include in the invested capital component.




I use EBIT/ Total Assets – Excess Cash – Non-interest bearing liabilities – Indefinite life Intangibles.

Yes there is a whole discussion around defining invested capital, but probably not here.


----------



## craft

robusta said:


> Just a question on the profit downgrades, does anyone think this is permanent or cyclical?
> 
> My money is obviously on the latter.




Robusta

Here are CKF's banking covenants

The agreement under which the New Bank Facilities will be made available contains undertakings typical for facilities of this nature. The undertakings include financial undertakings which will be tested at financial year end and financial half-year end based on the preceding 13 accounting periods (approximately 12 months). 


Net leverage ratio to be not greater than 2.75:1(1) 

Lease adjusted interest cover ratio to be equal to or greater than 1.75:1(2) 

Notes:
1. Pro forma debt to EBITDA for that period.
2. Consolidated EBITDA plus rental expense for that period to net interest expense plus rental expense for that period.

How are they travelling? 

If they breach the covenants or cannot roll their debt at the end of three years – the question of cyclical or permanent may  be irrelevant to current  shareholders.


----------



## craft

craft said:


> Debt to market cap is sometimes used in Bank Covenants. Compare YUM to CKF on that measure for some enlightenment.




I decided to answer this one for myself

It looks like Yum has about 3 billion debt and a market cap of 33 Billion 
Debt / Market Cap = *9%*

CKF has debt of about 105 Million on a market cap of 98 Million

Debt / Market Cap = *107%*


Hmmmmmm


----------



## odds-on

craft said:


> Debt to equity is really not a very useful measure.
> 
> Debt servicing ratios are far more informative.
> 
> Debt to market cap is sometimes used in Bank Covenants. Compare YUM to CKF on that measure for some enlightenment.
> 
> ps.
> 
> Good to see somebody using ROIC - far more informative then ROE. Equity has so many cumulative accounting adjustments that any ratio based on it is normally bogus. Not to mention non-comparable between different financial structures.




I am continually learning on this forum but I have yet to be convinced on the efficiency of analysing the debt servicing ratios, I see them as just another way of saying do you think the business is still going to be earning money in the coming years? Because if you think the business can service the debt you are essentially saying that the company is still going to be earning cash in the coming years. I know it is a minor point but the debt servicing ratios are basically linked to the earnings risk valuation.

IMO, comparing your quantified confidence in future earnings against the multiple to a conservative liquidation value is far more informative for an investment decision. Everybody has their own agenda but I respect that I am a minority shareholder who has no control of the business and capital decisions, therefore I like to look at the worst case and what I will get back (if I get anything) if the business failed. Remember all businesses fail eventually.

ROIC – how about Cash/Net Tangible Assets?

Personally I can lose focus with all these fancy calculations so I refer to the following:-

A cow for her milk
A hen for her eggs,
And a stock, by heck,
For her dividends.

An orchard for fruit,
Bees for their honey,
And stocks, besides,
For their dividends

John Burr Williams, Evaluation of the Rule of Present Worth, 1937


----------



## craft

odds-on said:


> I have yet to be convinced on the efficiency of analysing the debt servicing ratios, I see them as just another way of saying do you think the business is still going to be earning money in the coming years? Because if you think the business can service the debt you are essentially saying that the company is still going to be earning cash in the coming years. I know it is a minor point but the debt servicing ratios are basically linked to the earnings risk valuation.




Oddson, I think we are in total agreement.

This debt ratio discussion has been in relation to CKF. My interest in the company stopped dead at the balance sheet(which is the first thing I look at), because the continuance of future year earnings is at risk due to the financial structure.

I've just been throwing up some points that worried me, maybe others are happy with the risk - I'm very conservative in this respect.


----------



## McLovin

craft said:


> Net leverage ratio to be not greater than 2.75:1(1)
> 
> Lease adjusted interest cover ratio to be equal to or greater than 1.75:1(2)
> 
> Notes:
> 1. Pro forma debt to EBITDA for that period.
> 2. Consolidated EBITDA plus rental expense for that period to net interest expense plus rental expense for that period.
> 
> How are they travelling?




I get 2.44 and 1.96 respectively.

EBITDA I have back of the enveloped at $43.1m. With $105m in debt (and possibly more on the way) a fall in EBITDA to ~$38-$39m will put them in breach of their covenants. And obviously require a capital raising.


----------



## robusta

Sorry have been flat out lately, have not had the chance to respond to some very pertinent comments and questions about my two most recent investments let alone participate in the interesting discussion on debt. Yet I find myself making a new investment today.

*New Investment*

DTL- Data#3 Limited

1912 x DTL @ $1.045     $1998.04

I have been looking to pick up some DTL for a while now, probably have Wayne Swans horror budget to thank for the opportunity.

High ROE, good dividend yield, nice history of growth.

Take a look at the DTL thread, this is a interesting stock IMO.


----------



## robusta

skc said:


> Based on Comsec, total shareholder return (TSR) for PET is:
> 1 yr = 2.7% p.a.
> 3 yr = 14% p.a.
> 5 yr = -2.7% p.a.
> 
> And here are some examples of 10-yr TSR of other LICs:
> AFI = 7.9%
> MLT = 7.2%
> ARG = 6.2%
> DJW = 7.1%
> WAM = 8.0%
> AUI = 6.8%
> 
> There isn't a lot left after paying 6-7% interest on your loan. IMO the majority of LICs only offer great return for the management team, and is a relatively lazy way to "value invest".
> 
> Anyway, plenty of good information on the ASX website on LICs.
> 
> The LIC index (slightly negative since 2006)
> http://www.asx.com.au/products/listed-investment-companies-index.htm
> 
> Qtrly report by Bell Potter
> http://www.asx.com.au/documents/products/Bell_Potter_LIC_Report_December_2011.pdf




This may surprise but in general I think for the passive investor LIC's will generate less returns and probably be less tax efficient than a good ETF, yet I have allocated about the same amount of capital to PET as my largest positions.

Firstly I like the portfolio, if I had the ability to invest directly in international shares I would be happy to hold any or all of the stocks held by PET. To get this ar a nice discount to NTA is a bonus.

The investment manager, Wayne Peters is very conservative, there is a nice chunk of cash on the balance sheet to take advantage of any further volatility along with some nice growth assets like Berkshire and Fairfax Financial who have a long history of doing the same thing.

Apart from Cochlear, my portfolio is very concentrated on Australian earning, this vehicle gives me some nice diversification.

I do not expect this stock to give me fast, spectacular returns but as a nice steady compounding machine I think it is a no brainer.


----------



## robusta

The discussion on Collins Foods has given me a lot to think about. This stock has by far the most debt in the portfolio, perhaps I have underestimated the worst case scenario or overestimated the stability of earnings and cash flow from this business.

The basic question for me now comes down to risk / reward. Hopefully holding until the next reporting season is the correct course of action I am still wrestling with that decision.


----------



## Ves

robusta said:


> The discussion on Collins Foods has given me a lot to think about. This stock has by far the most debt in the portfolio, perhaps I have underestimated the worst case scenario or overestimated the stability of earnings and cash flow from this business.
> 
> The basic question for me now comes down to risk / reward. Hopefully holding until the next reporting season is the correct course of action I am still wrestling with that decision.




You will learn and notice a lot by holding small positions in companies. I seem to be more thorough in my analysis when I have a small position open, and this allows me to decide whether to build my holding further.


----------



## robusta

Ves said:


> You will learn and notice a lot by holding small positions in companies. I seem to be more thorough in my analysis when I have a small position open, and this allows me to decide whether to build my holding further.




You are right there, I will think twice before averaging down in this one, however I find it difficult to believe KFC will not make decent money in Queensland.


----------



## skc

robusta said:


> You are right there, I will think twice before averaging down in this one, however I find it difficult to believe KFC will not make decent money in Queensland.




krispy kream went bankrupt in Australia - one of the most overweight countries in the world... so anything can happen.


----------



## tech/a

Ive seen 3 Red Rooster Outlets close in Adelaide in the last few weeks!


----------



## kermit345

While KFC is obviously a favourite for a lot of people, whenever I go there I don't really see any healthy options or anything health related which could be to their detriment. You look at HJ's and McD's now they show the kj's in all of their offerings and are actively trying to make all of their burgers etc healthier or lower in energy. Not sure if this is weighing on KFC at the moment but in my view the wider population is becoming more health concious and KFC will get left behind if they don't start to join in.


----------



## McLovin

kermit345 said:


> While KFC is obviously a favourite for a lot of people, whenever I go there I don't really see any healthy options or anything health related which could be to their detriment. You look at HJ's and McD's now they show the kj's in all of their offerings and are actively trying to make all of their burgers etc healthier or lower in energy. Not sure if this is weighing on KFC at the moment but in my view the wider population is becoming more health concious and KFC will get left behind if they don't start to join in.




KFC has been in decline in the US for years. There is a stigma attached to fried chicken over there that we don't have in Australia though, ie you're poor and (probably) black.

I think a change of taste is more likely to kill off a brand rather than suddenly becoming health conscious.


----------



## skc

McLovin said:


> KFC has been in decline in the US for years. There is a stigma attached to fried chicken over there that we don't have in Australia though, ie you're poor and (probably) black.
> 
> I think a change of taste is more likely to kill off a brand rather than suddenly becoming health conscious.




I much prefer Nandos, or just the old chook from Woolies.


----------



## McLovin

skc said:


> I much prefer Nandos, or just the old chook from Woolies.




Nandos is good. I used to be a big Oportos fan but since they started franchising it's really gone downhill. Ole or Ogalo are my Portuguese chicken burgers of choice now.


----------



## kermit345

Nando's is excellent, however as I live in the country I never get to go there much. I think your right McLovin to some extent that people won't suddenly become health concious but I think your looking at it in the view of Take Away vs Non Take Away. I know personally ever since Hungry Jacks stated putting the kj's next to their menu items its made me think twice about going large, getting water instead of coke, getting a grilled chicken burger instead of a fried chicken burger.

KFC will always have its customers, i'm just thinking maybe HJ's and McD's are giving themselves a better opportunity to capture some extra market share with their offerings compared to the Colonel.


----------



## CanOz

Bloody heck, you guys are making me hungry!:kebab

CanOz


----------



## notting

CanOz said:


> Bloody heck, you guys are making me hungry!:kebab




Don't worry.  Sure the misses is stormen up some chicken feet or deepfried scorpians for ya OZ! :homer:


----------



## skc

I promise this is the last post I will make on this htread about chicken.


----------



## McLovin

kermit345 said:


> Nando's is excellent, however as I live in the country I never get to go there much. I think your right McLovin to some extent that people won't suddenly become health concious but I think your looking at it in the view of Take Away vs Non Take Away. I know personally ever since Hungry Jacks stated putting the kj's next to their menu items its made me think twice about going large, getting water instead of coke, getting a grilled chicken burger instead of a fried chicken burger.




That's a fair point. But I'd hazard a guess your average punter filling up on a bucket of fried chicken probably knows it's not doing him/her any favours. Remember about 7-8 years ago during the whole "Supersize Me" thing, the CEO of Wendy's was getting questioned about whether or not the company would expand into offering healthy options and he said words to the effect of "people don't come into our stores for healthy food". From what I've read, McD's etc don't make much money at all off their healthy menu items.

skc, I like your style. "Dale dug a hole", best line ever!


----------



## McLovin

I read this on Bloomberg and thought it might be of interest. It's about KFC expanding in Africa. 

It's very interesting that in the markets Yum! is expaning into they have clearly aimed their product at being more than just fast-food. $22 at KFC seems like a lot!



> Teddy Muthusi goes to Kentucky Fried Chicken in Kenya’s capital, Nairobi, for more than just fried food: it’s a status symbol.
> 
> *Muthusi gladly spends 1,870 shillings ($22), a quarter of the national monthly minimum wage, to treat his girlfriend at the country’s first U.S.-based fast-food company’s outlet that opened in August.* He can afford what many can’t. About 45 percent of Kenya’s population live on less than $1.25 a day, according to the World Bank.
> 
> “I’m willing to fork out more because it’s cool, it’s trendy, it’s a great place to be seen, and the food is good,” Muthusi, a 36-year-old creative manager at Easy FM radio station said in an interview on April 20, raising his voice above the pop music blaring through speakers. “Kenyans have that feeling if you can eat at KFC, you’ve made it.”
> 
> Muthusi is one of the upwardly-mobile, young and growing middle class of consumers in Africa that retailers including YUM! Brands Inc. (YUM)’s KFC are targeting to compensate for slower growth in developed markets. Household spending is set to expand 63 percent to $1.4 trillion in Africa by 2020, home to the world’s youngest and fastest-growing population, according to a 2010 report by McKinsey & Co.
> 
> Doug McMillon, chief executive officer of the international operations of Wal-Mart Stores Inc. (WMT), the world’s largest retailer, will join other executives seeking a foothold in Africa when the World Economic Forum’s annual Africa meeting begins in Addis Ababa, Ethiopia’s capital, today. LVMH Moet Hennessy Louis Vuitton SA (MC), the world’s largest maker of luxury goods, Coca-Cola Co. (KO), the world’s biggest soft-drinks producer, and PepsiCo Inc. (PEP) will also be represented at the three-day conference.




http://www.bloomberg.com/news/2012-05-08/kfc-bet-on-africa-middle-class-draws-global-retailers.html


----------



## So_Cynical

McLovin said:


> I read this on Bloomberg and thought it might be of interest. It's about KFC expanding in Africa.




Africans love fried chicken....seriously love it, its seen as a status symbol of sorts....the white variety of (meat) chicken is seen as a proxy for all things white (developed and good) and treasured for that, as wrong as that seems to us.

There is no political correctness in Africa.


----------



## sinner

If anyone was curious for a source for So_Cynicals claim as I was, I seriously advise they don't type "africans love white meat" into google...


----------



## CanOz

sinner said:


> If anyone was curious for a source for So_Cynicals claim as I was, I seriously advise they don't type "africans love white meat" into google...




LOL! I bet you had a fun time in there anyway!:afro:


----------



## McLovin

So_Cynical said:


> Africans love fried chicken....seriously love it, its seen as a status symbol of sorts....the white variety of (meat) chicken is seen as a proxy for all things white (developed and good) and treasured for that, as wrong as that seems to us.
> 
> There is no political correctness in Africa.




Yeah. I was going down to Africa for work for a while. Dealing with a Nigerian bank, a frustrating experience. Anyway, I was amazed at how _every_ woman would literally throw herself at you because you were white. It's full on, not subtle. I'm talking staff at restaurants will grab you by the crotch to let you know they're keen.


----------



## robusta

*New Investment* Well actually this will be third time around for this one.

MCE - Matrix Composites & Engineering

790 x MCE @ $2.53 = $1998.70

Managed to hit the 52 week low on this one, will be interesting to see if more are to come.

I fell the bad news is priced into this stock, surely they have to get some orders. Hopefully sooner rather than later.


----------



## notting

Re MCE - I'm not sure what the percentage is however new 52 week lows favour further lows!
It's one of those trend things.
Odds are Shirly down.
A weekening AU$ will help the cause down the track.
This thing could be significantly lower, buy then!  Sorry.


----------



## Ves

robusta said:


> I fell the bad news is *priced into this stock*, surely they have to get some orders. Hopefully sooner rather than later.



 How on earth are you valuing this, Robusta?  Obviously it is a cyclical, but with the shortages of contracts and lack of transparency of management adding to this complexity, I really do not see how you can even begin to make any reliable assumptions to input into a valuation model.  Any sort of mining / industrial services looks over-filled with competition at the moment too. Cost competition is fierce.


----------



## skc

robusta said:


> *New Investment* Well actually this will be third time around for this one.
> 
> MCE - Matrix Composites & Engineering
> 
> 790 x MCE @ $2.53 = $1998.70
> 
> Managed to hit the 52 week low on this one, will be interesting to see if more are to come.
> 
> I fell the bad news is priced into this stock, surely they have to get some orders. Hopefully sooner rather than later.




You've made no attempt to hide your transformation from wannabe-value-investor to random-punting-gambler (with particular focus on ex-Roger Montgomery-spruiked stocks)... well done.

Not to mention you are close to fully loaded heading into a Greek crisis that seems to be worse than last year...


----------



## robusta

skc said:


> You've made no attempt to hide your transformation from wannabe-value-investor to random-punting-gambler (with particular focus on ex-Roger Montgomery-spruiked stocks)... well done.
> 
> Not to mention you are close to fully loaded heading into a Greek crisis that seems to be worse than last year...




Sooo my stocks dont meet your criteria they must be a gamble is that it?

Do you know where the market is going?  For me I will pay the price I am prepared to pay, the market can take care of itself, one day it will hit a new high.


----------



## So_Cynical

skc said:


> *You've made no attempt to hide your transformation from wannabe-value-investor to random-punting-gambler* (with particular focus on ex-Roger Montgomery-spruiked stocks)... well done.
> 
> Not to mention you are close to fully loaded heading into a Greek crisis that seems to be worse than last year...




LOL

Yes robusta seems to be morphing into a bit of a value punter with a splash of contrarian knife catching thrown in....its all a learning experience after all. 

But seriously if one is keen on a particular stock (MCE / CKF) then sometimes you just have to lay your money down and back your judgement...regardless of the 1000 voices saying don't do it.  no one was slapping me on the back when i was buying ILU at $3 or BPT at 68 cents, saying well done, what a great time to buy etc etc.

Sometimes you just sort of have to accept that the majority of people selling XYZ at a particular time (market low) are Muppet's... arguably when looking at significant low points in any good stock your looking at Muppet's selling.


----------



## robusta

So_Cynical said:


> LOL
> 
> Yes robusta seems to be morphing into a bit of a value punter with a splash of contrarian knife catching thrown in....its all a learning experience after all.
> 
> But seriously if one is keen on a particular stock (MCE / CKF) then sometimes you just have to lay your money down and back your judgement...regardless of the 1000 voices saying don't do it.




Cheers, as you know I will admit when/if I am proved wrong but sometimes the best results are from going against the crowd.


----------



## skc

robusta said:


> Sooo my stocks dont meet your criteria they must be a gamble is that it?




Your words, not mine!



robusta said:


> *INVESTMENT SOLD*
> 
> MCE - Matrix Composites 837 @ $3.66 = $3063.42
> 
> Looking at the numbers of MCE it seems *I have been guilty of speculation of a bright future, with little evidence that this will occur. *I would consider buying again if the price is attractive enough but taking a little back of the previous losses now seems prudent to me.




What are some of the new evidence that suggest a bright future? Or are you reacting to the price? Look at your transaction records and how you've done when you are reacting to price?

Again, your words not mine.



robusta said:


> Yep seems I have been trading and here is  news flash, I AM BLOODY TERRIBLE AT IT.






robusta said:


> Do you know where the market is going? For me I will pay the price I am prepared to pay, the market can take care of itself, one day it will hit a new high.




You know quotes like these are only useful for people who are managing other people's money and make an income on their fees. Now go tell the Japanese one day their market will hit a new high.

And since you think my posts on this threads are nothing more than criticisms that are trying to undermine your methods while making myself look good, this will be the last post I make on your thread.

Good luck.


----------



## sinner

There must be something about past winners...




MCE vs XSO, just my  robusta: I notice MCE was slow to participate in the early '12 rally and now very quick to participate in the fall.


----------



## McLovin

MCE was saying at the half year that they expected to have Henderson up to nameplate capacity by June 2012. Since then there has been not a peep out of them. Iirc, and it's been a while since I looked at MCE, they needed a fair bit of new work for that to happen. Unless they are winning lots of new small contracts, I would have expected at least one announcement of a new a contract. The quote book at HY12 was $700m.

It's all a bit too hard for me.


----------



## robusta

Well that could have worked out better, if I had bought today I would be holding about 8% more shares for the same capital outlay. It will be interesting to see what the future will bring.



Ves said:


> How on earth are you valuing this, Robusta?  Obviously it is a cyclical, but with the shortages of contracts and lack of transparency of management adding to this complexity, I really do not see how you can even begin to make any reliable assumptions to input into a valuation model.  Any sort of mining / industrial services looks over-filled with competition at the moment too. Cost competition is fierce.




Not very scientific I admit but I think the growth will return and the share price has overshot on the downside.



skc said:


> What are some of the new evidence that suggest a bright future? Or are you reacting to the price? Look at your transaction records and how you've done when you are reacting to price?




Yes I am reacting to the price as I did with COH, MTU, NVT, TGA, OKN....

I think the business is worth more than the price offered.




skc said:


> You know quotes like these are only useful for people who are managing other people's money and make an income on their fees. Now go tell the Japanese one day their market will hit a new high.




Not sure how much we compare with Japan, our bubble is not quiet as big as theirs was.



skc said:


> And since you think my posts on this threads are nothing more than criticisms that are trying to undermine your methods while making myself look good, this will be the last post I make on your thread.
> 
> Good luck.




Nothing could be further from the truth skc, no insult was intended, you have taught me a lot in particular regarding position sizing and portfolio management.


----------



## Ves

Trading Halt for MCE too. Didn't notice that this arvo.  Obviously bad news with the sell-off ahead of the company announcement.  Company definitely not something I would touch - but wonder how much more downside?


----------



## McLovin

Ves said:


> Trading Halt for MCE too. Didn't notice that this arvo.  Obviously bad news with the sell-off ahead of the company announcement.  Company definitely not something I would touch - but wonder how much more downside?




Looks like I was reading the tea leaves this morning!

I'll buy it at 40% of its tangible book value. There's a pretty important question here: This company has a good reputation for quality product, why aren't companies using their product?


----------



## burglar

What's the point of raving about things you won't buy???


----------



## robusta

*investment sold*

1896 x CKF @ $1.035

The last week I have been tossing and turning, thinking about the debt on the balance sheet. The cash flow should be enough to service the debt but why take the risk? Add to this there are a lot of businesses being priced attractively at the moment without the risk of massive debt/equity.

This exercise has been a bit like flushing almost $100 down the toilet.


----------



## So_Cynical

robusta said:


> *investment sold*
> 
> 1896 x CKF @ $1.035
> 
> The last week I have been tossing and turning, thinking about the debt on the balance sheet. The cash flow should be enough to service the debt but why take the risk? Add to this there are a lot of businesses being priced attractively at the moment without the risk of massive debt/equity.
> 
> This exercise has been a bit like flushing almost $100 down the toilet.




Closed at 1.06 to...jeez robusta i think its just a little to easy for you to take a loss.

Having said that .. i must admit that i have thought about doing the same thing, figuring that CKF hasnt actually fallen at all in this latest market pull back, and Jesus H Christ there are some great stocks going cheap at the moment.

And if i had that money (CKF) avalibale today...there's no way in hell id buy CKF  it wouldn't even make it on to a short list of 20 stocks!


----------



## StumpyPhantom

So_Cynical said:


> And if i had that money (CKF) avalibale today...there's no way in hell id buy CKF  it wouldn't even make it on to a short list of 20 stocks!




What's on your shortlist (and at what price)?


----------



## Klogg

Robusta - Not sure if you're looking for people to suggest companies to research, but here i go anyway....
Have you checked out DTL? I've been monitoring them for a little while and noticed what I thought was a bit of value presenting itself there quite recently.

(this is by no means a recommendation to buy, just a suggestion to go and research further)


----------



## robusta

Klogg said:


> Robusta - Not sure if you're looking for people to suggest companies to research, but here i go anyway....
> Have you checked out DTL? I've been monitoring them for a little while and noticed what I thought was a bit of value presenting itself there quite recently.
> 
> (this is by no means a recommendation to buy, just a suggestion to go and research further)




Thanks Klogg, I bought my first parcel of DTL earlier this month.

Tried to buy some more yesterday after it hit $0.9 , got my order in a bit late. Have left the order in the market at $0.92.


----------



## robusta

Klogg said:


> Robusta - Not sure if you're looking for people to suggest companies to research, but here i go anyway....




The world of companies I research is very small so if anyone has any suggestions I am more than happy, cheers Klogg.

*Investment Increased*

Bought 2089 X DTL @ $0.92 = $1921.88

This is basically what I pulled out of CKF, I think the capital has found a better home. In a few years people will be wondering how I managed to pick up DTL under $1.00

This brings my holding to 4001 shares bought at a average around $0.98


----------



## LifeChoices

Heaps of cheap stocks around today Robusta - have you considered another margin loan?

You could do pretty well. I don't think anyone could accuse you at buying at the top of the market today?


----------



## robusta

You are right, good time to buy today, not thinking about a margin loan yet I still have some capital to deploy.


----------



## Ves

Most of the quality companies with history to back it up are still looking over-priced to me for what it's worth. I've been nibbling at a few smaller caps however. Wouldn't bet the house on it yet.  Probably best to just average into position if you want to be cautious and not just snap at market falls.


----------



## robusta

*Investment Increased*

MTU - M2 Telecommunications

278 x MTU @ $2.66 = $739.48 (Converted renounceable rights offer)

Actually parted with the cash a bit over a week ago, shares were allocated today.

This makes MTU my largest holding at the moment with 1393 shares bought at a average price ~ $2.628.


----------



## CanOz

robusta said:


> *Investment Increased*
> 
> MTU - M2 Telecommunications
> 
> 278 x MTU @ $2.66 = $739.48 (Converted renounceable rights offer)
> 
> Actually parted with the cash a bit over a week ago, shares were allocated today.
> 
> This makes MTU my largest holding at the moment with 1393 shares bought at a average price ~ $2.628.




Hmm, this one might be ok, after it makes a new recent low at 2.8 ish.

Well done.

CanOz


----------



## robusta

*Investment Sold*

790 x MCE @ $2.00

Wow :nuts:


----------



## CanOz

robusta said:


> *Investment Sold*
> 
> 790 x MCE @ $2.00
> 
> Wow :nuts:




Well done Robusta, cut that loss short.

A breakaway gap to the downside is never a bullish sight.

CanOz


----------



## robusta

CanOz said:


> Well done Robusta, cut that loss short.
> 
> A breakaway gap to the downside is never a bullish sight.
> 
> CanOz




Thanks, would have been a whole lot better if I didn't buy it in the first place however. 

Lesson learned. I mean it this time.


----------



## Ves

Robusta - rather than clog up the GNG thread with talk about BKL I'll post here.

Just remember that BKL has fairly high debt-to-equity.  I had a quick look at the half-yearly report.  They also have other fixed costs such as leases.  Care should probably be taken to see how much of a cash flow buffer they have if the proverbial hits the fan due to the European crisis. I am not sure what preferences you have for debt ratios, but I usually try to compare this to operating cash flow and will not proceed unless there is a big margin for error. A general observation from the past decade seems to be that BKL matches their debt/equity ratios to their earnings cycle.  Since the GFC they seem to be reducing this percentage. Happy researching!


----------



## RottenValue

I'm new to the forum and just spent the last 3 hours going through Robusta's thread - what an enjoyable ride!  I was laughing by the end when he entered MCE for the third time, almost like one of those old John Cleese management videos.

Hats off to you Robusta for putting your learnings out there for all of us to read, I must admit some cringing as I read with the benefit of hindsight.


A couple of suggestions for Robusta to consider:

(1) Be careful of following what Roger is spruiking, he is a Salesman first and foremost and not someone you should try to follow as an Investing guru.  

(2) Decide if you really want to be a long-term value investor or trader  -  your personality does not seem the type to research and then buy with conviction for the long term (and I mean years).  Nothing wrong with that, just know who you are so you maximise your own personality type

Finally, a Stock suggestion for you in return for the enjoyment you have given me.  

Your thinking was sound on the overseas diversification and a LIC is a good way to do this.  I suggest taking a long look at MFF as an alternative to PET - Long term value managers and a great portfolio of worldwide names.  Look to pick it up when the discount to NTA is greater than 15% (20% is when I buy but I already have accumulated 150,000 shares).  It is up about 30% this year which keeps me happy


----------



## So_Cynical

RottenValue said:


> I suggest taking a long look at *MFF* as an alternative to PET - Long term value managers and a great portfolio of worldwide names.  Look to pick it up when the discount to NTA is greater than 15% (20% is when I buy but I already have accumulated 150,000 shares).  It is up about 30% this year which keeps me happy




I have it as never paying a dividend? and listed in 2006..im assuming a reinvestment of capital policy?

I've never had a good look at it because there was no dividend so it didn't met my LIC/Fund criteria.


----------



## Gundini

Nice chart over a year I'll give it that!


----------



## RottenValue

It hasn't paid a dividend yet, the managers report that they do intend to but have been waiting for some sort of clarification from the ATO before commencing.  Not sure what the issue is.

To be honest, the lack of dividend hasn't worried me while the SP continues to move north.  Note that they only invest in a small number (less than 20) of companies with long term growth characteristics (Yum!, Coca Cola, AMEX, ebay, Wells Fargo, China Mobile, etc) and are unhedged   - a beautiful thing when buying at $1.10 and banking on the AUD to fall back to $0.80 eventuallly.

I jumped in back in December because I wanted significant O/S exposure, liked the LIC management style, it was unhedged and it was trading below its normal discount to NTA.  And importantly compared to PET, it is reasonably liquid with 500,000 shares trading daily.


----------



## robusta

RottenValue said:


> I'm new to the forum and just spent the last 3 hours going through Robusta's thread - what an enjoyable ride!  I was laughing by the end when he entered MCE for the third time, almost like one of those old John Cleese management videos.
> 
> Hats off to you Robusta for putting your learnings out there for all of us to read, I must admit some cringing as I read with the benefit of hindsight.




Believe it or not I have enjoyed the ride as well and I must admit I sometimes react a bit like Basil when backed into a corner 




RottenValue said:


> A couple of suggestions for Robusta to consider:
> 
> (1) Be careful of following what Roger is spruiking, he is a Salesman first and foremost and not someone you should try to follow as an Investing guru.




Have learned that one the hard way, I still like the valuation method from the book but prefer to go my own way now 



RottenValue said:


> (2) Decide if you really want to be a long-term value investor or trader  -  your personality does not seem the type to research and then buy with conviction for the long term (and I mean years).  Nothing wrong with that, just know who you are so you maximise your own personality type




Maybe I don't convey it on this thread as you are not the first to suggest this but long-term value resonates with me. 
This portfolio has been going for less than a year and has had a high turnover as I have been finding my way. I view COH, NVT, MTU, DTL, TGA and PET as long term core holdings. I would be very surprised if I am not holding at least four of them over the next five to ten years.



RottenValue said:


> Finally, a Stock suggestion for you in return for the enjoyment you have given me.
> 
> Your thinking was sound on the overseas diversification and a LIC is a good way to do this.  I suggest taking a long look at MFF as an alternative to PET - Long term value managers and a great portfolio of worldwide names.  Look to pick it up when the discount to NTA is greater than 15% (20% is when I buy but I already have accumulated 150,000 shares).  It is up about 30% this year which keeps me happy




Thank you, I am not sure how I missed MFF, I still like PET but MFF is now on my watch list waiting for a opportunity to buy. I would be happy to hold both and have a larger exposure overseas.

Templeton came up on my radar when I was researching PET but MFF is preferable in my opinion.



RottenValue said:


> It hasn't paid a dividend yet, the managers report that they do intend to but have been waiting for some sort of clarification from the ATO before commencing.  Not sure what the issue is.




Maybe because the performance bonus is linked to the NTA / share? This does not bother me as long as they are employing retained profits at a decent rate of return.


----------



## robusta

NEW INVESTMENT

SWL - Seymour Whyte Limited

Bought 1685 @ $1.18 = $1988.30


----------



## Klogg

robusta said:


> NEW INVESTMENT
> 
> SWL - Seymour Whyte Limited
> 
> Bought 1685 @ $1.18 = $1988.30




May I ask why?


----------



## So_Cynical

Klogg said:


> May I ask why?



 Why he paid 18c to much? or why SWL?

----

SWL announced a 30% (Approx) profit downgrade and the share price falls 40+% ~ all things being equal SWL looks cheap at today's close of $1.015 but $1.18 looks a little impetuous.


----------



## Ves

So_Cynical said:


> Why he paid 18c to much? or why SWL?
> 
> ----
> 
> SWL announced a 30% (Approx) profit downgrade and the share price falls 40+% ~ all things being equal SWL looks cheap at today's close of $1.015 but $1.18 looks a little impetuous.



Why do you say it looks cheap?


----------



## So_Cynical

Ves said:


> Why do you say it looks cheap?




Profit fell 30% share price fell 40% = cheap.

I have a totally non "value" way of deciding what's cheap...like BPT the other week at 95c = cheap, i sold 4 days later for 1.10 proving that it was indeed "cheap" CKF cheap at 1.06 the subsequent price action (1.15) has proven that indeed it was cheap.

I could go on...but its not "value" so your not interested.


----------



## Klogg

So_Cynical said:


> Why he paid 18c to much? or why SWL?
> 
> ----
> 
> SWL announced a 30% (Approx) profit downgrade and the share price falls 40+% ~ all things being equal SWL looks cheap at today's close of $1.015 but $1.18 looks a little impetuous.




Sorry, should have said 'why did you chose to buy SWL'... I suppose why pay $1.18 is also a good question.

I don't know a great deal about the company, but given the profit downgrade and the order book, it doesn't look like the downgrade is a one off thing...

Just wanted to see what parts of Robusta's analysis led him to buy


----------



## Klogg

So_Cynical said:


> Profit fell 30% share price fell 40% = cheap.
> 
> I have a totally non "value" way of deciding what's cheap...like BPT the other week at 95c = cheap, i sold 4 days later for 1.10 proving that it was indeed "cheap" CKF cheap at 1.06 the subsequent price action (1.15) has proven that indeed it was cheap.
> 
> I could go on...but its not "value" so your not interested.




I'm always interested in a different view - otherwise I'd be assuming my way is the only way... (value is the only thing that rings true to me though)

How did you come to the conclusion that on the basis of a 40%SP fall (vs 30% profit fall) it was cheap?


----------



## So_Cynical

Klogg said:


> How did you come to the conclusion that on the basis of a 40%SP fall (vs 30% profit fall) it was cheap?




I must admit it was a quick conclusion...i find it hard to value service company's because they don't own anything and so much of their value is contract based.

I just feel that a soft (some of it accounting) 30% fall in profit doesn't warrant a 40% SP correction...in a bear market its almost always the negatives that get over done, often catching the bottom of the spike down will turn out to be a tremendous opportunity.


 MC 79 mill
 Cash 35 mill (approx)
 Debt 9 mill (approx)

Looks cheap


----------



## robusta

Klogg said:


> May I ask why?




It would have been nice to get it closer to $1.00 like I did in my super but there was a mini bounce in the middle of the day....

As to why buy SWL at all, look on the SWL thread.


----------



## robusta

*New Investment*

KAM - K2 Asset Management

Bought 6250 @ $0.24 = $1500.00

Happy to discuss on the KAM thread.


----------



## robusta

*PORTFOLIO UPDATE*

Thought I had better update this portfolio for the EOFY. 
There is a error somewhere of $93.96 in my favor that I will pick up when doing the tax return.

Capital losses for the year of $2504.50, considering I lost $3027.86 due to my fatal attraction to MCE and made other errors I will take that. 

Paid the broker $863.00, that is 43 buy and sell events WAY TOO MUCH!!! Have set myself a target of five or less trades this year.

Bank interest and charges $2303.28

Dividends $960.33 Franking credits $383.34

So that is a loss of $4710.45

Better have a look at where the open positions are

Open Positions
Bought:
1115    x MTU    @   $2.62      =    $2921.30        08/08/11
65       x COH     @   $45.85    =    $2980.25        30/09/11
1373   xOKN       @ $1.455      =    $1997.72        23/11/11
916 x PRV          @ $0.655      =    $599.98          25/01/12                                                                                                                                      
1023 x NVT        @ $2.93        =    $2997.39        02/02/12           
972 x TGA          @ $1.505          =$1462.86        05/04/12
4000 x PET         @ $0.78           =$3120.00        20/04/12
1074 x TGA         @$1.395          =$1498.23        26/04/12
1912 x DTL         @1.045            =$1998.04        18/05/12
278  x MTU         @$2.66           =$739.48           21/05/12 (rights issue)
2089 x DTL         @$0.92           =$1921.88         18/06/12
1685 x SWL        @$1.18           =$1988.30          19/06/12
6250x KAM         @$0.24           =$1500.00          27/06/12
Subtotal      $ 25,725.43

Current Portfolio Position

65        x COH       @$65.84  =$4279.60
4001    x  DTL       @$1.11    =$4441.11
6250    x KAM       @$0.28    = $1750.00
1393    x MTU       @ $3.36  = $4680.48
1023 x NVT          @ $4.34  = $4439.82
1373  x OKN         @$1.05   = $1441.65
4000 x PET           @$0.80  =$3200.00
916    x PRV         @$0.64 = $586.24
1685  x SWL         @$0.995=$1676.58
2046  x TGA          @ $1.46=$2987.16

Subtotal = $29,482.64

Cash contributed $2100.00

This brings the total loss considering the open positions to $953.24


Credit still available of $1747.05 with dividend season on the way.


----------



## ParleVouFrancois

Nice to see you claw your way back , after a few blunders you seem to be travelling well, keep it up man!


----------



## robusta

ParleVouFrancois said:


> Nice to see you claw your way back , after a few blunders you seem to be travelling well, keep it up man!




Thank you for that. There is still a long way to go before I am satisfied with the returns but at least it is headed in the right direction at the moment.

I think I will be well served by long periods of inactivity, there are some top  quality companies in this portfolio I should sit back let them compound, collect dividends and wait for opportunity to come knocking.


----------



## robusta

*NEW INVESTMENT*

EZL - Euroz Limited

Bought 1412 @ $1.055 = $1489.66

Well I just like the way these guys allocate capital, the holdings in OZG & WIC are a bonus, also good leverage to any possible rebound in world growth.

Fully invested now, need some dividends if I am going to buy anymore - lucky for me tis the season.


----------



## robusta

Probably should start a thread for PET one day but until then I will update here.

Latest quarter results out now.

http://www.petersmacgregor.com/2012 June IMA Report.pdf

Very happy with the deal with ASTA, buying as low as $1.30 - $1.40 during the GFC and selling half the position at $9.40, also happy with the increased positions in Tesco and Johnson & Johnson.

The new JC Penny investment however I am not so sure about I like to listen to the American Motley Fool podcasts and those guys thought JC Penny had lost their way. I will just have to wait and see I guess.

All in all a credible result for the year in a difficult year for investing. The other thing I like about holding PET is the 30% cash, it will make me feel a little better if the market continues to be bearish knowing Wayne Peters will be buying as I am fully invested at the moment.


----------



## robusta

Ves said:


> Robusta - rather than clog up the GNG thread with talk about BKL I'll post here.
> 
> Just remember that BKL has fairly high debt-to-equity.  I had a quick look at the half-yearly report.  They also have other fixed costs such as leases.  Care should probably be taken to see how much of a cash flow buffer they have if the proverbial hits the fan due to the European crisis. I am not sure what preferences you have for debt ratios, but I usually try to compare this to operating cash flow and will not proceed unless there is a big margin for error. A general observation from the past decade seems to be that BKL matches their debt/equity ratios to their earnings cycle.  Since the GFC they seem to be reducing this percentage. Happy researching!




Thank you Ves and sorry I tool so long to reply. I have not done any further research on BKL as by my estimation it is trading about or a bit above my estimate of IV, however they to have I nice history of growing earnings and high ROE over the last decade and should profit handsomely from a ageing population. Anyways I was reminded of this post when reading the CAM quarterly update today, starting from page 10 they have a interesting discussion on calculating intrinsic value and as a example they use BKL. Some may find the method used familiar.

Sorry I am having trouble downloading PDF at the moment, click on this link and type in CAM if interested.

http://www.asx.com.au/asx/statistics/announcements.do

Other items of interest is CAM has been buying or increasing positions in TGA, BKL, BKW, FGE, IRE and BHP.

They have also sold the position in MTU stating Iprimus cost to much and will result in lower ROE, EPS and higher debt. I will be reading the annual report with added interest.


----------



## Ves

robusta said:


> Thank you Ves and sorry I tool so long to reply. I have not done any further research on BKL as by my estimation it is trading about or a bit above my estimate of IV, however they to have I nice history of growing earnings and high ROE over the last decade and should profit handsomely from a ageing population. Anyways I was reminded of this post when reading the CAM quarterly update today, starting from page 10 they have a interesting discussion on calculating intrinsic value and as a example they use BKL. Some may find the method used familiar.
> 
> Sorry I am having trouble downloading PDF at the moment, click on this link and type in CAM if interested.
> 
> http://www.asx.com.au/asx/statistics/announcements.do
> 
> Other items of interest is CAM has been buying or increasing positions in TGA, BKL, BKW, FGE, IRE and BHP.
> 
> They have also sold the position in MTU stating Iprimus cost to much and will result in lower ROE, EPS and higher debt. I will be reading the annual report with added interest.



Thanks for the post.  I am working my way through the Clime investor report. However, I will comment that the more I think about it, the more trouble I find locked away in the intricacies of Return on Equity as a measurement of investment return (and perhaps capital intensity).  I prefer ROIC, although it too can have its short comings.

I think the calculation, or reported value of equity itself, if you want to look at it in any depth, can pose questions to the validity of using this as the denominator. Past earnings and current earnings (accounting profits, not necessarily bearing any economic reality in some cases!) and even the contributed equity figure (how close to fair value is it and how much difference does this make?) cause problems.  Of course this is also influenced by capital structure too.  Not to mention the seasonal nature of earnings or other special situations (such as start-ups or businesses going through a growth spurt). Sometimes I can over-analyse things, especially when relying on single ratios, so I try to use a whole mixture.  I guess what I am is saying is that I find it hard to rely on valuation calculations where ROE is the main input, especially if they involve a perpetuity calculation.


----------



## robusta

OK here is the link, may be easier to find in the future

http://www.climecapital.com.au/wp-content/uploads/2012/07/CAM-Quarterly_0612.pdf




Ves said:


> Thanks for the post.  I am working my way through the Clime investor report. However, I will comment that the more I think about it, the more trouble I find locked away in the intricacies of Return on Equity as a measurement of investment return (and perhaps capital intensity).  I prefer ROIC, although it too can have its short comings.
> 
> I think the calculation, or reported value of equity itself, if you want to look at it in any depth, can pose questions to the validity of using this as the denominator. Past earnings and current earnings (accounting profits, not necessarily bearing any economic reality in some cases!) and even the contributed equity figure (how close to fair value is it and how much difference does this make?) cause problems.  Of course this is also influenced by capital structure too.  Not to mention the seasonal nature of earnings or other special situations (such as start-ups or businesses going through a growth spurt). Sometimes I can over-analyse things, especially when relying on single ratios, so I try to use a whole mixture.  I guess what I am is saying is that I find it hard to rely on valuation calculations where ROE is the main input, especially if they involve a perpetuity calculation.




Cheers Ves I think I can see where you are coming from it is a imprecise measurement at the best of times looking at the past with the hope returns will follow into the future. The problem is I know of no better way to value a business. DCF can lead you astray as well. 

Personally I am happy using ROE as the main input as this tells me how much money the business earns on the owners investment. A high ROE with low debt it is often a sign of a competitive advantage being present. I can think of no better metric to use. The trick is deciding how sustainable the returns are and how much you are prepared to pay.

With this in mind I think it is vital to look for high quality and a margin of safety in your calculations.


----------



## robusta

*Investment Sold*

PRV - Premier Investments

Sold 916 @ $0.64 = $586.24

This was by far the smallest position in the portfolio, I was intending to let it build via the DRP. Basically EZL and SWL have reached even more attractive prices since I bought and I am "searching the back of the couch" for more capital to increase one of these positions.

That's twice I have paid the broker this month I must slow down this frenzy of activity.


----------



## sinner

robusta said:


> Basically EZL and SWL have reached even more attractive prices since I bought and I am "searching the back of the couch" for more capital to increase one of these positions.
> 
> That's twice I have paid the broker this month




Won't you be paying the broker a third time if you buy some EZL or SWL?

I only ask in relation to



> I must slow down this frenzy of activity.


----------



## robusta

Yeah you are right but I will also have run out of money and there is nothing else I am looking to sell.


----------



## robusta

INVESTMENT INCREASED

SWL - Seymour Whyte

Bought 843 @ $0.895  = $754.49

That's it all in, bring on the dividends


----------



## Noddy

robusta said:


> *NEW INVESTMENT*
> 
> CCP - Credit Corp Group
> These guys specialise in debt collection, they buy overdue debts from banks, credit card companies etc at a discount and collect the payments. The minimum they budget to make on a 6 year period on purchased debts is 230%.
> 
> Once again a simple business model with the ability to increase revenue and profits with not much extra capital required. CCP also has the ability to retain a lot of equity (low payout ratio) and earn a high return on that equity.
> ROE is a little low at the moment (otherwise my investment would be larger) but it should be rising in the future.
> 
> I will keep a eye on FSA because they seem to be gaining market share but probably at a lower margin to CCP.
> 
> Portfolio Position
> 
> Starting line of credit $30,000.00
> 
> Bought
> 7,142 x TSM @ $0.66 = $4713.72   (25/07/11)
> 546   x  MCE @ $6.95 = $3797.70   (25/07/11)
> 853   x CCP  @ $4.48 = $$3821.44  (26/07/11)
> 
> 
> Brokerage Paid = $40.05
> Lenders Mortgage insurance $667.81 paid
> 
> Available credit $16,959.28
> 
> All ords @  25/07/11  4603.80
> 
> I do have one order in the market half filled but after that waiting on reporting season to find more value.




Hi Robusta.
Best of luck with your thread.
Is there any particular reason that you buy odd numbers of shares ?


----------



## robusta

Noddy said:


> Hi Robusta.
> Best of luck with your thread.
> Is there any particular reason that you buy odd numbers of shares ?




Cheers Noddy, when I started investing way back in 2010, all positions were nice even numbers, 2000 of xyz, 10000 of ABC.... Now I decide to allocate say $3000 to a company including brokerage and however many shares I get that is it. Must admit sometimes I will allocate a number like $2990 so in a few years when the position is hopefully priced at $6000 by the market I will look sooo much smarter.


----------



## burglar

robusta said:


> Cheers Noddy, when I started investing way back in 2010, all positions were nice even numbers, 2000 of xyz, ...




With the advent of the spreadsheet, it is no longer necessary for mental arithmetic on nice even numbers.


----------



## kermit345

Hi robusta,

I'd taken a back seat from the market for a while but started looking through some stocks lately in search of some value using some basic screeners. One that caught my eye is Challenger (CGF) and I was wondering if you or any others here have had a look at it recently? The reason it caught my eye was as follows:

Current P/E of about 6.86 vs other diversified financials companies - (Platinum – 13.83, Macquarie – 10.35, IOOF – 14.90, Perpetual – 17.09)
Reasonably steady increase over the years in EPS and DPS with only hiccup coming in 08 - same as most financial companies experienced.
Consensus earnings are all pointing towards EPS growth this year, even at the lower end - which will marginally increase dividends as they maintain a payout ratio
Continue to implement buyback strategy which certainly seems a smart move while the shares trade at this PE level.

Interested in the views of others, just seems they are lurking in the shadows with consistent earnings growth while trading at a reasonable discount to peers. Note I also work in the financial services industry and Challenger are (as far as i know) the first company that springs to mind for most when doing annuities for people leading to or in retirement. As baby boomers continue to move into retirement it should help them continue their EPS growth as all their presentations show.

Anyhow just thought i'd generate some discussion


----------



## So_Cynical

robusta said:


> (26th-July-2012)INVESTMENT INCREASED
> 
> SWL - Seymour Whyte
> 
> Bought 843 @ *$0.895*  = $754.49
> 
> That's it all in, bring on the dividends




Traded as low as *0.81* cents again today, 3 days this week...maybe that's a good sign. :dunno:





kermit345 said:


> One that caught my eye is Challenger (CGF) and I was wondering if you or any others here have had a look at it recently?
> 
> Anyhow just thought i'd generate some discussion




CGF is on one of my oldest watch lists, in fact one of my very first watch lists from 2007, CGF is one of the many stocks i just didn't have enough money for in GFC 1, and i was totally spewing i didn't get in on the last big dip ($3.50) a couple of years back. 

I had taken my eye off the CGF ball, thanks for re focusing me.  does look cheap...and my super fund desperately needs a big financial.


----------



## odds-on

kermit345 said:


> Interested in the views of others, just seems they are lurking in the shadows with consistent earnings growth while trading at a reasonable discount to peers.




Kermit,

I performed a short term trade when it was at $3.08.

IMO, CGF is tricky to value due to the business structure of a Fund Manager and Life Insurance. If the Life Insurance part of the business was listed seperately I would buy a lot as I am confident about the retirement megatrend over the next 20 years. Not sure I want to long term hold the Fund Manager side of the business.

I traded at the time due to the following. 

-priced around book value
-the last company announcement was positive
-the company is performing share buybacks 
-the medium analyst forecast for the next 12 months is around $4.5. 

There is a lot to like about Challenger but I will never long term hold due to  Fund Manager side of the business. If it drops to under book value I trade it again - it is on my watchlist.

Cheers

Oddson


----------



## robusta

kermit345 said:


> Hi robusta,
> 
> I'd taken a back seat from the market for a while but started looking through some stocks lately in search of some value using some basic screeners. One that caught my eye is Challenger (CGF) and I was wondering if you or any others here have had a look at it recently? The reason it caught my eye was as follows:
> 
> Current P/E of about 6.86 vs other diversified financials companies - (Platinum – 13.83, Macquarie – 10.35, IOOF – 14.90, Perpetual – 17.09)
> Reasonably steady increase over the years in EPS and DPS with only hiccup coming in 08 - same as most financial companies experienced.
> Consensus earnings are all pointing towards EPS growth this year, even at the lower end - which will marginally increase dividends as they maintain a payout ratio
> Continue to implement buyback strategy which certainly seems a smart move while the shares trade at this PE level.
> 
> Interested in the views of others, just seems they are lurking in the shadows with consistent earnings growth while trading at a reasonable discount to peers. Note I also work in the financial services industry and Challenger are (as far as i know) the first company that springs to mind for most when doing annuities for people leading to or in retirement. As baby boomers continue to move into retirement it should help them continue their EPS growth as all their presentations show.
> 
> Anyhow just thought i'd generate some discussion





Thank you, I have not looked at Challenger previously, it is on the watch list now. Would not surprise to see one of the banks try to take them over.


----------



## kermit345

I decided to buy some late last week, superannuation and retirement centric investments are only going to increase in size and providing challenger doesn't make some monumental stuff up they should continue to be around and reap the rewards. Bit of a boring investment really but that doesn't both me as long as it continue's to steadily improve YoY.

I think what may hurt their valuation currently vs their peers is that while their P/E is quite low due to the relatively high EPS, the dividend yield is still only around 5%. Most of their peers have yields around the 7% mark and some are fully franked. Maybe Challenger need to increase their payout ratio a little to entice more more their way.

I wouldn't be surprised either Robusta, was looking at some Financial Planner and FUM numbers the other day in a financial planning magazine we receive at work. AMP/AXA and CBA's numbers are truely huge vs most others, this would lead me to believe that someone like Westpac of NAB might have a tilt if they wanted to expand their financial services market share - although may still be a remote chance as regulators may step in?


----------



## skc

kermit345 said:


> I decided to buy some late last week, superannuation and retirement centric investments are only going to increase in size and providing challenger doesn't make some monumental stuff up they should continue to be around and reap the rewards. Bit of a boring investment really but that doesn't both me as long as it continue's to steadily improve YoY.
> 
> I think what may hurt their valuation currently vs their peers is that while their P/E is quite low due to the relatively high EPS, the dividend yield is still only around 5%. Most of their peers have yields around the 7% mark and some are fully franked. Maybe Challenger need to increase their payout ratio a little to entice more more their way.
> 
> I wouldn't be surprised either Robusta, was looking at some Financial Planner and FUM numbers the other day in a financial planning magazine we receive at work. AMP/AXA and CBA's numbers are truely huge vs most others, this would lead me to believe that someone like Westpac of NAB might have a tilt if they wanted to expand their financial services market share - although may still be a remote chance as regulators may step in?




There was some rumour that CGF will need to boost capital because of change in regulation on how their assets are treated. That may be the reason for downward pressure on the share price. Don't have the link at hand so Google for yourself.

Otherwise I like CGF's annuity products although I don't know if there's really much competitive advantage in their product offering.


----------



## Ves

Looking at the half-year result for CGF, they are clearly exposed to market risk and must report insurance assets at fair value (hence a big hit to profit). Can you gaurantee that this isn't a one-off as the company seem to be implying in their preso?  That's the main problem with this company, you take on individual investment risk, but also further market investment risk through exposure to their own portfolios. It's certainly not as quality a hedge against low earnings performance that you find at the bottom of the cycle as you would in a company with a sustainable competitive advantage IMO. 

Also check the franking balance available. Why are their dividends unfranked?  Does this provide a sufficient hedge in some way to the rest of your portfolio to justify paying the tax that the missing credits create?


----------



## robusta

Speaking of competitive advantage here is a interesting article in this weeks The Bull newsletter.

http://www.thebull.com.au/articles/a/30336-6-stocks-leading-the-pack.html

Have not considered many of these either, not sure about any competitive advantage for any except maybe WOW and CCL.

Interesting to see Morningstar have exclusive use of the term "Moat"


----------



## robusta

Nice little milestone for this portfolio today, managed to hold on to a investment in a company for 12 months.

This is my post when I first bought MTU




robusta said:


> *NEW INVESTMENT*
> 
> MTU - M2 Telecommunications
> 
> A month ago I was looking at MTU and thinking if only it fell below $3.00 I would buy some, well at $2.62 today I could no longer resist.
> A nice history of growth, good ROE and bright prospects. Once again this is a business that can increase revenue and NPAT with very little capital expenditure required.
> 
> Here is the latest investor presentation
> http://www.asx.com.au/asxpdf/20110519/pdf/41yr8z22h5d2d9.pdf
> 
> Bought 1115    x MTU   @   $2.62   = $2921.30    (08/08/11)




The renounceable share offer was also participated in in May of this year.



robusta said:


> *Investment Increased*
> 
> MTU - M2 Telecommunications
> 
> 278 x MTU @ $2.66 = $739.48 (Converted renounceable rights offer)
> 
> Actually parted with the cash a bit over a week ago, shares were allocated today.
> 
> This makes MTU my largest holding at the moment with 1393 shares bought at a average price ~ $2.628.




Really should include brokerage in the costing so in total $3680.73 has been invested in this company, no dividend has been paid yet on the converted shares but two $0.09 dividends have been received for a return of $200.70 this gives me a yield of ~5.45% plus $86.02 in franking credits. The cost of my capital through the line of credit is currently 6% so that is a fail on that first hurdle.

To use some ratings agency speak I currently have this company on a "negative watch", after the major acquisition in May I understand debt will be higher, ROE and EPS will be lower for the most recent reporting period. In the absence of any surprises in the Annual report I will be watching the interim and following full year report to see debt being paid down and returns increasing. Before May I would not have considered selling below ~$4.25 now $3.80 + would give me something to think about.

For what it is worth looking at todays closing price of $3.44 the market is offering buy my interest in MTU back for $4791.92


----------



## robusta

Probably should add 52 week low, $2.27 52 week high $3.73. Etrade is showing total shareholder return for 1 year of 30.1% 

I would love anyone with the ability to post a chart to put one up for the recent 12 months and maybe another for the 12 month period ending 08/08/11, this will show how volatile the price has been while the earnings have been anything but.


----------



## craft

robusta said:


> Probably should add 52 week low, $2.27 52 week high $3.73. Etrade is showing total shareholder return for 1 year of 30.1%
> 
> I would love anyone with the ability to post a chart to put one up for the recent 12 months and maybe another for the 12 month period ending 08/08/11, this will show how volatile the price has been while the earnings have been anything but.


----------



## robusta

Thank you craft and well done for finding this one a few years before me.


----------



## skc

skc said:


> There was some rumour that CGF will need to boost capital because of change in regulation on how their assets are treated. That may be the reason for downward pressure on the share price. Don't have the link at hand so Google for yourself.
> 
> Otherwise I like CGF's annuity products although I don't know if there's really much competitive advantage in their product offering.




Announcement today that the additional capital required is not as much as some feared... share price up 6%...


----------



## McLovin

skc said:


> Announcement today that the additional capital required is not as much as some feared... share price up 6%...




This is another one I missed out on. I had been watching it and was waiting to get in around $3. Oh well.


----------



## kermit345

Looks like I got a little bit of luck on this one, could've gone either way but it just looked like the share price had pushed too far down for my liking.

For the first time in a while some of my investments are doing what they were bought to do lol. I understand the whole market is going up at the moment so its not that spectacular but I feel i'm starting to find my groove with the way i'm looking at stocks.

For interests sake I was looking at morningstar research for a clients holdings today and quickly checked out their CGF research. Their fair value is $5.50 now, will be interesting to see how far this runs. A few value companies have had some decent announcements recently (TGA, CGF, FGE to name a few).

EDIT: Note i don't base my investment decisions on the fair value morningstar has for stocks, just thought i'd clear that up. Just posting for interests sake.


----------



## robusta

kermit345 said:


> For the first time in a while some of my investments are doing what they were bought to do lol. I understand the whole market is going up at the moment so its not that spectacular but I feel i'm starting to find my groove with the way i'm looking at stocks.




There is some satisfaction when the returns start to be positive, as a value investor by definition you are saying the market is wrong, I am right, this security is worth more. On the other side of the coin when I have capital available to deploy I love it when the market is falling, there are so many more opportunities then.


----------



## Ves

However, you may not know for sure that the market was not right to price it lower in the first place and the current rally is wrong for many years to come...


----------



## robusta

Ves said:


> However, you may not know for sure that the market was not right to price it lower in the first place and the current rally is wrong for many years to come...




Would depend on the business, but if should not be too hard to work out by looking at the earnings and cash flow over a decent holding period, if you can get some decent growth - bonus!!!


----------



## robusta

LifeChoices said:


> Lucky is a strange word. I'm always told, by others, how lucky I am when something really unlucky happens to me.
> 
> Seriously, how long do you think it will be before your investments will be back to b/e?






LifeChoices said:


> 2017 maybe? That'll be a lot of posts about new fundamental positions. But I'm sure there will be lots of bargains in between.




My answer back in October last year was i had no idea but was confident one day it would happen, well that day was 17/08/12 

Line of credit drawn $27,797.50, cash contributed $2450.00  = $32247.50

Current market value of portfolio = $32640.87  

When this portfolio started the all ords was 4603.8, now 4393.81 FWIW a little outperformance there - a big surprise considering the blunders made I am sure.

Anyway now that little FIGJAM moment is over it does not make any difference to how I view this portfolio and the compensation for the risks taken are nowhere near enough - yet.

Next little goal I will be waiting for is to turn cash flow positive it probably won't happen this year but I have high hopes for FY 2013/14.


----------



## Ves

robusta said:


> Would depend on the business, but if should not be too hard to work out by looking at the earnings and cash flow over a decent holding period, if you can get some decent growth - bonus!!!




Good!  The focus isn't on the price  - but the underlying business performance.


----------



## robusta

craft said:


> View attachment 48521






Ves said:


> Good!  The focus isn't on the price  - but the underlying business performance.




Cheers that is why I don't get excited or depressed by the current market value of the portfolio it could move twenty percent either way next week. The cash flow, ROE, EPS and dividends however interest me greatly.


----------



## craft

robusta said:


> Next little goal I will be waiting for is to turn cash flow positive it probably won't happen this year but I have high hopes for FY 2013/14.




Hi Robusta

Have you taken into account imputation credits?

I’m a little surprised that you are not already cash flow positive as the market itself is yielding 6.7% gross and I would have thought your selection would be yielding a bit more.

Either there, or nearly there, a positively geared portfolio of businesses offering growth potential is nothing to be sneezed at.  A bit more of an equity buffer to deal with the volatility would probably be a good risk mitigation objective from here.


----------



## robusta

craft said:


> Hi Robusta
> 
> Have you taken into account imputation credits?
> 
> I’m a little surprised that you are not already cash flow positive as the market itself is yielding 6.7% gross and I would have thought your selection would be yielding a bit more.
> 
> Either there, or nearly there, a positively geared portfolio of businesses offering growth potential is nothing to be sneezed at.  A bit more of an equity buffer to deal with the volatility would probably be a good risk mitigation objective from here.




Made some spectacular stuff ups in the first year, earned a bit over $900 in dividends, paid the bank a bit over $2300 in interest and charges and to top it off a capital loss just under $3000. I should have read that loosers game article a bit earlier. Anyway that's the past it should be interesting to see the decisions in the future.

I decided not to use franking credits in the returns as these leave the portfolio and are offset against my income at the marginal tax rate. They are valuable to me but I am happy to take a larger tax return in these early years and hopefully reach into my pocket and pay some extra tax in the future.


----------



## Ves

Just looking at my return for the last 12 months.  I'm 11.79% positive apparently.  That surprises me considering  I've never done this other than on stock market  games  (ie. not real money). The first stock I bought, although my smallest position is down 35%, but in all honestly it's not a "value investing stock" and it had no plan.  Quick lesson learnt!   My best performer, surprisingly is  CBA at  35% return.  All figures including dividends, but not imputation credits.  Thinking of taking profits on WBC and ANZ,   don't feel like I need to hold 3 banks at this point, especially with this sector holding considerable risk.  Sorry if this isn't relevant to your thread!


----------



## burglar

Ves said:


> Sorry if this isn't relevant to your thread!




Prey tell ... What could be more relevant to this thread?


----------



## robusta

Ves said:


> Just looking at my return for the last 12 months.  I'm 11.79% positive apparently.  That surprises me considering  I've never done this other than on stock market  games  (ie. not real money). The first stock I bought, although my smallest position is down 35%, but in all honestly it's not a "value investing stock" and it had no plan.  Quick lesson learnt!   My best performer, surprisingly is  CBA at  35% return.  All figures including dividends, but not imputation credits.  Thinking of taking profits on WBC and ANZ,   don't feel like I need to hold 3 banks at this point, especially with this sector holding considerable risk.  Sorry if this isn't relevant to your thread!




Just goes to show there are plenty of opportunities in the market for those prepared to take on risk. I'm sure I read a few pundits about a year ago predicting the banks would supply a decent yield but forget about any capital growth in this environment.


----------



## tinhat

robusta said:


> Just goes to show there are plenty of opportunities in the market for those prepared to take on risk. I'm sure I read a few pundits about a year ago predicting the banks would supply a decent yield but forget about any capital growth in this environment.




From a value perspective, CBA hasn't had any *real* growth in revenue or profit in the last financial year, and earnings forecasts for the next couple of year's don't predict any real growth either - so for me the recent rally in share prices of the big banks seems to be more about chasing yield in defensive stocks. There might come a time this year when I also consider selling some of my bank stocks if the price premium relative to yield gets too high. It depends if this rally continues as there seems to me to be quite a divergence at the moment between over-valued defensive income stocks and some of the "higher risk" stocks that are still languishing at very low valuations to earnings.


----------



## herzy

robusta said:


> I decided not to use franking credits in the returns as these leave the portfolio and are offset against my income at the marginal tax rate. They are valuable to me *but I am happy to take a larger tax return in these early years and hopefully reach into my pocket and pay some extra tax in the future*.




Sorry if this takes away from your thread, but could you explain this a little more? The extent of my understanding of franking credits is that you get 30% extra to compensate for tax already paid by the company...


----------



## robusta

herzy said:


> Sorry if this takes away from your thread, but could you explain this a little more? The extent of my understanding of franking credits is that you get 30% extra to compensate for tax already paid by the company...




Sure do and as a bonus with my leveraged posititions I am getting more benefit from franked dividends than I would otherwise. Say for example the portfolio earns $1000 in dividends in the same year $1000 is paid in interest the franking credits basically come straight off my tax bill.

However I view this as a bonus and do not make investment decisions based on tax considerations, the investment has to make sense first.

For the purpose of recording the returns of this portfolio I do not include the credits as they get mixed up in my personal tax return and basically leave the portfolio to be included in the consolidated payments I exchange with the tax man.


----------



## robusta

robusta said:


> *NEW INVESTMENT*
> 
> COH - Cochlear Limited
> 
> Bought 65 shares @ $45.85
> 
> Have had my eye on COH since the recall and it finally reached a price I am willing to pay. There may be more short term pain to come but the growth and stability of this company is exceptional.
> 
> This is a few weeks old but formed a beginning to my research.
> 
> http://www.youtube.com/watch?v=TJmoU_dIkqg
> 
> 
> *INVESTMENT SOLD*
> 
> MIN - Mineral Resources
> 
> It is with great regret that I sold MIN today but as stated earlier I am not comfortable being fully invested with such volatility around. The bottom line is COH was too good a opportunity to pass on an MIN was the closest to my calculation of IV in my porfolio.




Another nice anniversary today a year ago I bought into Cochlear, with hindsight it was also nice to get out of MIN with a small profit.

Anyway if you include brokerage I have invested $3000.20 and received $159.25 in dividends for a yield of a touch over 5.3% plus $32.32 in franking credits. 

This is another fail as far as dividends covering the interest cost of my line of credit but considering COH have increased the dividend every year since listing I have high hopes for the future.

Not many companies can have a recall on their flagship product and still perform as strongly as COH this year.

For what it is worth the most recent closing price of $67.15 gives my holding a market value of $4364.75, I think it is worth more and will continue to hold.


----------



## robusta

Just remembered the tax position for the past financial year has not been posted here yet.

Capital loss $3095.16 (this will be set aside to be offset against any future capital gains)

Income $960.32, Dividends minus bank interest/charges of $2303.28 equals a loss of $1342.96 against my normal income plus $383.32 in franking credits received means the tax man will give back a little extra this year.

I would much prefer to pay him extra on some nice profits but that day will come.


----------



## wilto

Good thread, about to read it all from the start.


----------



## robusta

*PORTFOLIO UPDATE*

Have not updated this portfolio since the EOFY, now all the dividends are tucked away I guess now would be a good time.

The only position I have closed so far this year is PRV, for a small capital loss, would have been a gain if I held on a little longer. This incurred a loss of $53.64 that adds to the previous fy loss of $3095.16 to make a grand negative total of $3148.80

Paid the bank $773.77 in interest and charges  when this is added to last years gouging of $2303.28 this brings the total I have paid the bastards to $3077.05

Received $833.09 in dividends plus $331.46 franking credits when we add to last years dividends $960.33 and franking credits $383.34

The total is $1793.42 in dividends plus $714.18 franking credits.

So that is a loss of $4432.43

Better have a look at where the open positions are (include brokerage)

Open Positions
Bought:
1115    x MTU    @   $2.62      =    $2941.25        08/08/11
65       x COH     @   $45.85    =    $3000.20        30/09/11
1373   xOKN       @ $1.455      =    $2017.67       23/11/11                                                                                                                                    
1023 x NVT        @ $2.93        =    $3017.34        02/02/12           
972 x TGA          @ $1.505          =$1482.81        05/04/12
4000 x PET         @ $0.78           =$3139.95        20/04/12
1074 x TGA         @$1.395          =$1518.18        26/04/12
1912 x DTL         @1.045            =$2017.99        18/05/12
278  x MTU         @$2.66           =$739.48           21/05/12 (rights issue)
2089 x DTL         @$0.92           =$1941.83         18/06/12
1685 x SWL        @$1.18           =$2008.25          19/06/12
6250x KAM         @$0.24           =$1519.95          27/06/12
1412x EZL          @ $1.055        = $1509.61         17/07/12
843 x SWL          @ $0.895        = $774.44           26/07/12

Subtotal      $ 27,628.95

Current Portfolio Position

65        x COH       @$71.71  =$4661.15
4001    x  DTL       @$1.15    =$4601.15
1412     x EZL        @ $1.025  = $1447.30
6250    x KAM       @$0.365    = $2281.25
1393    x MTU       @ $3.68  = $5126.24
1023 x NVT          @ $3.99  = $4081.77
1373  x OKN         @$1.255   = $1723.12
4000 x PET           @$0.86  =$3440.00
2528  x SWL         @$0.80 =$2022.40
2046  x TGA          @ $1.92 =$3928.32

Subtotal = $33,312.70

Cash contributed $3000.00

This brings paper profit considering the open positions to $1251.32

So the return on my contributions is ~41.71%.

Please understand this is a leveraged strategy and these returns can be very lumpy as you can see about 9 months ago the returns were minus a few thousand percent on my contributed capital.


----------



## burglar

robusta said:


> ... Paid the bank $773.77 in interest and charges when this is added to last years gouging of $2303.28 this brings the total I have paid the bastards to $3077.05
> ...




Hi robusta,

Bit harsh!


----------



## robusta

burglar said:


> Hi robusta,
> 
> Bit harsh!




Yeah you are probably right but somehow I find it strangely therapeutic to bash the banks.I would like to own shares in them one day however, at the right price.


----------



## burglar

robusta said:


> Yeah you are probably right ...




If it were just money I would agree.
But it's more than money.
It is opportunity!


----------



## robusta

*Investment Sold*

KAM - K2 Asset Management

Bought this small holding 27/06/12 my original plan was to collect nice dividend yield and consider selling somewhere north of $0.40 but with storm clouds again/still on the horizon in the financial world I decided to take my profits and hopefully redeploy this capital for a better future return.

Here is my original post, the market was pretty negative at the time as you can see if you look at the KAM thread.



robusta said:


> *New Investment*
> 
> KAM - K2 Asset Management
> 
> Bought 6250 @ $0.24 = $1500.00 + $19.95 brokerage = $1519.95
> 
> Happy to discuss on the KAM thread.




Sold 6250 shares today @$0.35 for total proceeds (including payment to the broker) of $2167.55 this gives me a capital gain of $647.60 that will be offset against previous losses for tax purposes.

In addition they have paid me a dividend of $62.50 + $26.79 franking credits.

This gives me a return on this small piece of capital of $710.10 or ~46.72% minus my cost of capital.


----------



## robusta

*New Investment*

IPP - IProperty Group Limited

Bought 1660 @ $0.915 = $1538.85

This business while not making any money at the moment is following in the footsteps of REA, with leading portals in Indonesia, Malaysia, Singapore and Hong Kong. They have recently had a breakthrough in the HK market and are a clear leader in Indonesia while Malaysia is actually making money. The are still trying to build a clear lead and network effect so there are risks but if successful the competitive advantage and pricing power in these markets should be satisfactory.


----------



## robusta

*Investment Sold*

Pet - Peters Macgregor Investments

Here is what I said back in April this year when I bought this one.



robusta said:


> *New Investment*
> 
> PET - Peters Macgregor Investments
> 
> Bought 4000 @ $0.78 = $3120.00
> 
> The liquidity on this one is almost trade by appointment, I moved the sp 4% today all on my own. Have been looking to buy for 3 weeks now and actually picked some up for my super earlier this month at $0.725, at the time all my spare cash was with the QBE spp.
> Anyway since then the latest monthly NTA announcement jumped from $1.0222 to $1.0931 after tax, my bid has constantly been outbid at higher volume and I missed 5000 shares @ $0.75 with my bid @ $0.745
> 
> But so much for the negatives I am very happy to finally have a piece of this one and I like the investment strategy and the holdings within this LIC - also still at a decent discount to NTA.
> 
> Wayne Peters is the chief investment officer, they also run a managed fund with as far as I can see parallel portfolios.
> 
> Anyway here is the investment philosophy.
> 
> http://www.petersmacgregor.com/about-philosophy.php
> 
> I like the way, the look at value, for example they bought BP in the middle of the oil spill disaster also Bank of America around $7.00.
> 
> Here is the most recent investment report
> 
> http://www.petersmacgregor.com/2012 March IMA Report.pdf
> 
> Top five holdings;
> 
> Michael Hill International - yes the jeweler!! Take a look at the cash flow, not much debt...
> 
> Berkshire Hathaway - have always wanted a piece of this one, just a cash generating machine.
> 
> Fairfax Financial - Another brilliant capital allocator at this insurance conglomerate a bit like BRK with more room to grow IMO.
> 
> Asta Funding - Americas version of Credit Corp
> 
> Bank of America - bought about a month before Buffet started buying.
> 
> I do not expect this one to shoot the lights out but a nice 10% CAGR of net tangible assets per share is more likely than not in my opinion, if that can be achieved I don't care what the share price does.




There is a bit of a discussion from page 22 of this thread if anyone is interested.


Still would have been happy to hold except I do not like the position they took in JC Penney (US retailer, same store sales falling off a cliff) and I am looking to free up some capital for other opportunities.

Sold 4000 shares @ $0.85 = $3380.05 after paying the broker.

That is a capital gain of $240.10 and in addition I received $80.00 in dividends plus $34.29 franking credits.

So that is a return of ~10.22% on my invested capital in about 7 months, not a world beater but I will take it.


----------



## RottenValue

Caught up with the thread after an absence of a few months and the PET sale reminded me of my MFF suggestion at the time. In hindsight, always a good thing, it seems MFF has continued to outperform, especially given they have commenced paying a dividend and provided a 1:3 bonus issue for no apparent reason.

However also brings back my latest big screw up  - having owned considerable MFF I was interested in exploring parent in MFG, after much angst decide that they were too expensive at $1.70 back in Feb.  With SP now at $4.50 I dont feel so clever with my 30% MFF gain  

Anyway, imortant that you stick to your proven process and accept that cant win them all


----------



## robusta

Know what you mean, after you suggested MFF I set my price I would like to buy at and just watched the sp run away, I also looked at MFG, added it to my watch list but decided it was too expensive. That's life I guess.


----------



## robusta

*Investment Increased*

TGA - Thorn Group

Bought 867 shares @ $1.745 = $1532.87 inc brokerage

There have been plenty of times in my short investing career that I have averaged down, this is the first time I have averaged up!!!. That shows a little of how highly I rate this business.

I don't expect TGA to shoot the lights out but I do expect rising dividends over time and maybe some capital gains to follow.


----------



## tinhat

robusta said:


> *Investment Increased*
> 
> TGA - Thorn Group
> 
> Bought 867 shares @ $1.745 = $1532.87 inc brokerage
> 
> There have been plenty of times in my short investing career that I have averaged down, this is the first time I have averaged up!!!. That shows a little of how highly I rate this business.
> 
> I don't expect TGA to shoot the lights out but I do expect rising dividends over time and maybe some capital gains to follow.




Really? I hold TGA in the SMSF and plan to do so. But alas, like many of the high dividend payers, earnings growth is looking a bit soft. When I look at the banks and other companies yielding over 5% I generally see soft earnings growth forecasts. When you look at defensives that have solid earnings outlooks you are looking at a dividend less that 5% at the moment. That is just my observation. I like that the payout ratio keeps enough cash retained to grow the business but is still giving a very attractive yield. The bottom line with TGA I think is faith in the management's ability to make the right investments and get the business strategy right to keep up with the changing economics of consumer durables markets.


----------



## robusta

*New Investment*

HHL - Hunter Hall International

Bought 1182 shares @ $2.85 = $3388.65 including brokerage.

The basic thesis for this one is, they are growth value investors focusing on small to mid caps who have unsurprisingly had sub par returns recently with a resultant shrinkage of funds under management. I am confident the returns will improve (they are up a bit over 11% this financial year) and the FUM will start flowing back in. Many investors in managed funds follow the most recent high performers while selling poor performers even if they have a long history of good returns - a bit like sheep really.

While I wait for positive returns I am sure the dividends will be satisfactory.


----------



## tech/a

robusta said:


> *New Investment*
> 
> HHL - Hunter Hall International
> 
> Bought 1182 shares @ $2.85 = $3388.65 including brokerage.
> 
> The basic thesis for this one is, they are growth value investors focusing on small to mid caps who have unsurprisingly had sub par returns recently with a resultant shrinkage of funds under management. I am confident the returns will improve (they are up a bit over 11% this financial year) and the FUM will start flowing back in. Many investors in managed funds follow the most recent high performers while selling poor performers even if they have a long history of good returns - a bit like sheep really.
> 
> While I wait for positive returns I am sure the dividends will be satisfactory.




So having a read here I notice some value investors buying at $5.90 ish then $3.90 ish and now
$2.50 ish
Sheep----really.


----------



## systematic

tech/a said:


> So having a read here I notice some value investors buying at $5.90 ish then $3.90 ish and now
> $2.50 ish
> Sheep----really.




Oh, tech/a; honestly.


----------



## McLovin

tech/a said:


> So having a read here I notice some value investors buying at $5.90 ish then $3.90 ish and now
> $2.50 ish
> Sheep----really.




So umm...you don't know what a value investor is. No surprise there, really. Falling over your own hubris, again.


----------



## tech/a

The---err value----was at which level $5---3---2.5

In a few months the value will be astounding!


----------



## McLovin

tech/a said:


> The---err value----was at which level $5---3---2.5
> 
> In a few months the value will be astounding!




Who was the value investor doing that? So_Cynical most certainly isn't one, not that you'd know.


----------



## tech/a

McLovin said:


> Who was the value investor doing that? So_Cynical most certainly isn't one, not that you'd know.




https://www.aussiestockforums.com/forums/showthread.php?t=13513
Post 4 still holding evidently.

Evidently value to most on ASF = $ cost averaging.



> The basic thesis for this one is, they are growth value investors focusing on small to mid caps who have unsurprisingly had sub par returns recently with a resultant shrinkage of funds under management. I am confident the returns will improve (they are up a bit over 11% this financial year) and the FUM will start flowing back in. Many investors in managed funds follow the most recent high performers while selling poor performers even if they have a long history of good returns - a bit like sheep really.




This value investing fund share price has dropped 70 % --- works well.
Your 11% rise only needs another 700% to reach its last peak.

Value investing
or
Falling knife* punt*!


----------



## RandR

tech/a said:


> https://www.aussiestockforums.com/forums/showthread.php?t=13513
> Post 4 still holding evidently.
> 
> Evidently value to most on ASF = $ cost averaging.
> 
> 
> 
> This value investing fund share price has dropped 70 % --- works well.
> Your 11% rise only needs another 700% to reach its last peak.
> 
> Value investing
> or
> Falling knife* punt*!





"My way works better then yours" 

Its just embarrasing when someone with your intelligence and understanding of markets makes a comment that so embarrasingly misses the mark and shows a complete and utter ignorance of financial analysis and value investing.

Tech ...

...If similarly stupid comments were made in reference to any of the thousands of hedge funds that have practised some form of technical analysis and failed miserably would you think it a fair and reasonable argument that tech/a is usesless ? 

Its most interesting that you apply great business investing principles into your real estate (as far as im aware) and then display a complete disdain and ignorance of these when it comes to investing in business via the market.


----------



## tech/a

Your concern is touching.

All forms of analysis work brilliantly in a bull market.
Risk and portfolio management works during bear and
Oscillating markets.
One size doest fit all. Regardless of ASF opinion.

Much Value investing in falling markets
The more they and portfolios fall the more " Value " 
Is found in held stocks --- and past favorites.

Under valuation is a market disease.The value investor
Is way more intelligent to the market--- they--- have simply got it wrong!

Next bull market will prove that right!!
Value??
Nah!


----------



## McLovin

tech/a said:


> https://www.aussiestockforums.com/forums/showthread.php?t=13513
> Post 4 still holding evidently.
> 
> Evidently value to most on ASF = $ cost averaging.




Again, like I said, SC is not a value investor. Get it?




tech/a said:


> This value investing fund share price has dropped 70 % --- works well.
> Your 11% rise only needs another 700% to reach its last peak.




Wrong again. The fund manager's share price has dropped 70%. The value fund they manage has returned an outperformance of 8.9%pa since 1994. Seems like it's working to me. Why don't you give up this silly game, you really have no idea what you're talking about.

http://www.hunterhall.com.au/managed_funds_VGT.php#performance


----------



## Ves

tech/a said:


> Much Value investing in falling markets
> The more they and portfolios fall the more " Value "
> Is found in held stocks --- and past favorites.



Yes - your mentor, Nick Radge, was on YMYC recently saying that SWM was a "good buy" and looked "technically good."  

I've heard it was technically good at $10, $8,  $4.20,  $3, $1.80 so far.

There are knife catchers in all investing approaches. 

For every HHL there has been a TGA, MMS and NVT to name a few recently.

Cheers.


----------



## robusta

tech/a said:


> This value investing fund share price has dropped 70 % --- works well.
> Your 11% rise only needs another 700% to reach its last peak.




McLovin answered this one we are talking about two different things, FUM and the returns of the listed investment manager.

700% that is worth waiting at least 10 years for, I did not realize the sp got high prior to the GFC, it is not impossible they will hit new highs one day.



McLovin said:


> Wrong again. The fund manager's share price has dropped 70%. The value fund they manage has returned an outperformance of 8.9%pa since 1994. Seems like it's working to me. Why don't you give up this silly game, you really have no idea what you're talking about.
> 
> http://www.hunterhall.com.au/managed_funds_VGT.php#performance






tech/a said:


> Value investing
> or
> Falling knife* punt*!




HHL makes their money via FUM (a fixed percentage) and bonuses for outperformances. The big if is can they outperform in the future? History and looking at their largest holding (Sirtex) suggests to me the odds are in my favor. 

As sure as night follows day if they outperform for a rolling five year period FUM will increase. I have no idea by how much but if the outflows (I expect these to continue) reverse back to current FUM, HHL will still generate me a decent return. 

Any investment by it's nature is a punt but the beauty of the stock market is you can wait and occasionally back champions at cricket score odds. We will have to wait a while to see if HHL fits this category.


----------



## Boggo

Ves said:


> Yes - your mentor, Nick Radge, was on YMYC *recently* saying that SWM was a "good buy" and looked "technically good."
> 
> I've heard it was technically good at $10, $8,  $4.20,  $3, $1.80 so far.




Slight difference between recently (where it has gone up nearly 50%) and $10, $8 etc etc, they would have been statements by those who average down into greater loss.
Wouldn't mind seeing some of those "technically good" references that you heard.

Anyway, its interesting to note that when these fund managers etc quote performance they seem to forget inflation. How many of them would get their _15% performance bonus_ if they applied true value to their calculations.
Apply reality (below) to the results in the link in a previous post above and see how the figures would look.


----------



## robusta

Boggo said:


> Anyway, its interesting to note that when these fund managers etc quote performance they seem to forget inflation. How many of them would get their _15% performance bonus_ if they applied true value to their calculations.
> Apply reality (below) to the results in the link in a previous post above and see how the figures would look.




Good point Boggo, that is the beauty of owning the fund manager, not the fund.


----------



## McLovin

Boggo said:


> Anyway, its interesting to note that when these fund managers etc quote performance they seem to forget inflation. How many of them would get their _15% performance bonus_ if they applied true value to their calculations.
> Apply reality (below) to the results in the link in a previous post above and see how the figures would look.




$91,172 v inflation of $15,979. Seems pretty good to me.


----------



## Boggo

McLovin said:


> $91,172 v inflation of $15,979. Seems pretty good to me.




It would if you look at it that way


----------



## McLovin

Boggo said:


> It would if you look at it that way




Deflate it to 1994 dollars you still get $55k.


----------



## So_Cynical

tech/a said:


> https://www.aussiestockforums.com/forums/showthread.php?t=13513
> Post 4 still holding evidently.
> 
> Evidently value to most on ASF = $ cost averaging.




I Can confirm that im still holding and as of Fridays close my HHL position is down 31.93% ~ 7 parcels (4 div reinvestments) with an average price of $4.13...im due to take a major average down soon.

I also have one closed trade of 8% profit....the fund managers are getting hammered.

As McLovin rightly pointed out, a value investor i am not.


----------



## Ves

Boggo said:


> Slight difference between recently (where it has gone up nearly 50%) and $10, $8 etc etc, they would have been statements by those who average down into greater loss.
> Wouldn't mind seeing some of those "technically good" references that you heard.



I can't say when he bought it (if he even did) but when he mentioned it is was already high $1.40s.  

I'm also not saying Nick said it was technically good at any other point, but their were plenty of such comments made on YMYC over the last 18 months for a start.  For all I know these technical analysts that appear on that show make more money from their books than their trading.  

Boggo - you and me both know that in both fields of investing very few people can out-perform the market (and inflation) over the long-term.

All I am saying is that there are bottom pickers on both sides of the coin and I think it is unfair to single "value investors" out every time.

There are years worth of posts saved on Hotcopper covering this and many other things.


----------



## tech/a

Where do you get that this is an F/A---T/A dog fight.

The fact that around 80% of stocks simply move with the Fundamentals of the overall underlying market
Including HHL has been shown in graphical form.
Over the long term. Significant Change in underlying Fundamentals and you'll get a reversal to 80 % bullish from current bearish price action,including HHL.
So unless I've missed this significant shift--- my comments remain.

Sure I understand the theory that the fund has risen 11% and IF continues FUM and share price should rise.
But again without substantial change in the underlying market Fundamentls---it's not going to happen.

No technical analysis has been presented up.
But more than happy to put up a chart with 
Supporting analysis.

Ignore buttons a great function.
I look forward to you guys using it.
I won't have to put up with the childish attacks.


----------



## Joe Blow

There was no need for this thread to turn into a TA vs. FA scrap.

I have tried to clean it up a little by removing some off topic posts, and ones containing personal attacks, so let's please try and keep this thread both civil and on topic from this point forward.

It's far better to have a constructive discussion, even one that's a bit heated at times, than one riddled with insults and off topic posts. Any further off topic posts or ones containing insults or personal attacks will be removed.

Please use your ignore lists if you feel the need. I sincerely hope that nobody leaves the forum over a relatively minor incident such as this.


----------



## RandR

tech/a said:


> Where do you get that this is an F/A---T/A dog fight.
> 
> The fact that around 80% of stocks simply move with the Fundamentals of the overall underlying market
> Including HHL has been shown in graphical form.
> 
> Sure I understand the theory that the fund has risen 11% and IF continues FUM and share price should rise.
> ---it's not going to happen.
> 
> No technical analysis has been presented up.
> But more than happy to put up a chart with
> Supporting analysis.
> 
> Ignore buttons a great function.
> I look forward to you guys using it.
> I won't have to put up with the childish attacks.




I and im sure many others have learnt alot from your postings tech/a and i appreciate your input. But your either just 'not getting it' when it comes to value analysis or your playing dumb to stir the pot. I think myself and some other posters have gotten the feeling that your deliberately misinterpreting things to troll people. Your posting above simply serves to highlight this.



> But again without substantial change in the underlying market Fundamentls---it's not going to happen.




We understand your point ... most gains in stocks are made in times of bull markets and the majority of stocks will only move in that direction as a whole during that time of optimism ... thats great ... but it misses the point that as a true value investor ... what the hell does underlying market fundamentals mean ? It means nothing... because we dont invest in the market. We invest in a business, which after doing some form of financial analysis, we have deemed to be being traded at a price that represents a discount to the value of the business on an ongoing basis. So you can understand that although there are times even during a bull market where you can find business to buy at a decent price, the majority of business could/will be overpriced during a bull market. Like you stated 80% of which will run off with the bull.

Does it not stand to your reasoning that as a result of 'generally' not being able to purchase business during a bull phase that the majority of a value investors purchases would indeed be considered during a sideways or bear market? 

Indeed, the aim of value investing is not to snatch at any falling knife ... the key to the discipline is simply distinguishing those that you'd be happy to snatch at and those your happy to watch fall without catching. That's where the true power of value investing can be realised and significant outperformance made. Its essentially being able to distinguish the purchase of only business that have a superior business moat and or competitive advantage.



> Over the long term. Significant Change in underlying Fundamentals and you'll get a reversal to 80 % bullish from current bearish price action,including HHL.
> So unless I've missed this significant shift--- my comments remain.




What are the underlying market fundamentals tech ? What would you deem to be a 'significant shift' ... and do you suggest that we should be waiting for this to occur before making stock purchases, is that your point ?


----------



## tech/a

> What are the underlying market fundamentals tech ?




In General terms and in no particular order.

Banks restricting capital to companies.
Slowing of the China and Indian bull.
Decreased confidence in government.
Investors shell shocked from Super losses.
European crisis still hanging about.
USA still printing money and not making a dent
in their ever growing debt.
Slowed growth everywhere.

***A significant shift would be sustained growth without the fear of
financial collapse within government and or banking sectors.



> is that your point ?




I cant see confidence in the markets returning for a very long time.
Super funds will continue to perform badly and investment will be
frustratingly un reliable as a source of capital growth or passive income- to those who have already retired.

The thought of retirement either self or government funded will fade as the years pass by.
The recognised retirement growth areas of Housing and Stock investment will stay stagnant
longer than many can wait---including the Govt who will need to fund those too old to work.

The only solution I can see s for people to "Learn to TRADE" and place themselves in a position of passive income.
Time-frames of over a week or so will be disappointing.
Conventional Fundamental type investing just wont give the return needed.
Particularly as most have no risk or portfolio management criteria in place.
Again MOST have no idea if what they are doing will in the long term return a passive income or ANY income.
For most INVESTING OR TRADING IN TIMES LIKE THESE. There is loss,pain and anxiety.

*F/A or T/A Based!*


Without ****--The significant shift---*Doing the same thing day in and day out and EXPECTING a different result*---isn't going to do it.

And that's what I see in thread after thread on these boards.
Disappointment after disappointment.
What worked years ago isnt working now and wont until **** then* EVERYTHING WORKS*!


----------



## McLovin

tech/a said:


> What worked years ago isnt working now and wont until **** then* EVERYTHING WORKS*!




It's still working, even robusta would be ahead if it wasn't for his leverage.

There are plenty of people on here using fundamentals and making money, myself included (25% ytd, on a decent amount of capital, without going into detail it's seven figures). In my experience, it's become easier to find value and make money post GFC than in the years 2003-2007, when the king tide lifted everything, regardless of how rubbish it was.

You seem to attribute poor analysis as being the result of FA being flawed, which is wrong.


----------



## tech/a

How do you get that---



> You seem to attribute poor analysis as being the result of FA being flawed, which is wrong.




From That----







> In General terms and in no particular order.
> 
> Banks restricting capital to companies.
> Slowing of the China and Indian bull.
> Decreased confidence in government.
> Investors shell shocked from Super losses.
> European crisis still hanging about.
> USA still printing money and not making a dent
> in their ever growing debt.
> Slowed growth everywhere.
> 
> ***A significant shift would be sustained growth without the fear of
> financial collapse within government and or banking sectors.
> 
> 
> 
> 
> is that your point ?
> 
> 
> 
> 
> I cant see confidence in the markets returning for a very long time.
Click to expand...


----------



## McLovin

tech/a said:


> How do you get that---
> 
> 
> 
> From That----




I don't...I get it from this comments like this...



> Much Value investing in falling markets
> The more they and portfolios fall the more " Value "
> Is found in held stocks --- and past favorites.
> 
> Under valuation is a market disease.The value investor
> Is way more intelligent to the market--- they--- have simply got it wrong!
> 
> Next bull market will prove that right!!
> Value??
> Nah!




Made in complete ignorance of FA generally and VI specifically.


----------



## robusta

McLovin said:


> It's still working, even robusta would be ahead if it wasn't for his leverage.
> 
> There are plenty of people on here using fundamentals and making money, myself included (25% ytd, on a decent amount of capital, without going into detail it's seven figures). In my experience, it's become easier to find value and make money post GFC than in the years 2003-2007, when the king tide lifted everything, regardless of how rubbish it was.
> 
> You seem to attribute poor analysis as being the result of FA being flawed, which is wrong.




It is even working for me, despite the leverage and some massive stuff ups.

This from page 31 of this thread.



robusta said:


> *PORTFOLIO UPDATE* So the return on my contributions is ~41.71%.
> 
> Please understand this is a leveraged strategy and these returns can be very lumpy as you can see about 9 months ago the returns were minus a few thousand percent on my contributed capital.




I'm getting that felling of deja vu all over again with the TA vs FA thing. Both are profitable strategies given good execution.


----------



## brty

I am a little reluctant to become involved in this discussion, as I hold Tech/A's views in high regard, yet I also hold Craft's views in a similar vein. Personally I mostly trade using TA but I also use and hold stocks for longer periods using FA. I believe, and results indicate there is merit in both.

The FA analysis I use is close to Piotroski's, you can read about it here...

http://www.chicagobooth.edu/faculty/selectedpapers/sp84.pdf

Of relevance is the following from Forbes magazine...



> The Piotroski approach to stock picking got a special boost after the American Association of Individual Investors revealed that it was the only stock screening strategy out of 56 screening methodologies that had positive results in 2008.
> 
> Believe it or not, the five stocks that AAII bought using Piotroski's strategy in 2008 gained 32.6% on average through the end of the year. The median performance for all of the AAII strategies last year? -41.7%.




Obviously to me is that there are many different types of "value analysis" that does not work, just like there are many types of "technical analysis" that do not work. The real danger is dismissing all of one type of analysis, just because you have not been able to make it work for you. That is where I find all these FA vs TA arguments come from.

Tech/A


> "A significant shift would be sustained growth without the fear of
> financial collapse within government and or banking sectors."




I'm wondering if you have your tongue in cheek here, your experience would clearly indicate that when all the good news is out, with nothing but blue sky, is often the time to cash out rather than the time to invest.



> Super funds will continue to perform badly




Super funds continue to attract funds from the super guarantee currently 9% and slated to rise. They have to do something with the money and interest rates are declining here.



> Particularly as most have no risk or portfolio management criteria in place.
> Again MOST have no idea if what they are doing will in the long term return a passive income or ANY income.
> For most INVESTING OR TRADING IN TIMES LIKE THESE. There is loss,pain and anxiety.




Completely agree; my observation is that most FA practitioners, and for that matter most TA as well, ride losers to oblivion using the single worst strategy around, averaging down.


----------



## George Washingto

tech/a said:


> The thought of retirement either self or government funded will fade as the years pass by.
> The recognised retirement growth areas of Housing and Stock investment will stay stagnant
> longer than many can wait---including the Govt who will need to fund those too old to work.
> 
> The only solution I can see s for people to "Learn to TRADE" and place themselves in a position of passive income.
> Time-frames of over a week or so will be disappointing.
> Conventional Fundamental type investing just wont give the return needed.




Is this saying what I think it is?

The solution to retirees who don't have sufficient income is day trading? Speculating on stocks based on squiggly lines, whilst lining brokers pockets?

Surely not.


----------



## brty

George, you have made 4 posts on this forum, yet you choose to attack a long established member with a proven record. Perhaps you could earn yourself some credibility before attacking anyone about anything.

How about detailing what you think you know about the market in terms of FA as that could be beneficial and relevant to this thread. Are squiggly lines different to numbers on paper? Tell us your wisdom. Show some evidence.


----------



## jancha

brty said:


> George, you have made 4 posts on this forum, yet you choose to attack a long established member with a proven record. Perhaps you could earn yourself some credibility before attacking anyone about anything.
> 
> How about detailing what you think you know about the market in terms of FA as that could be beneficial and relevant to this thread. Are squiggly lines different to numbers on paper? Tell us your wisdom. Show some evidence.




Bert Forget the Squiggly line bit but I think the question is quite relevant. He's simply asking a question on Techs  seriousness with retirees solution to learn to trade in shares in order to get ahead.
I find that a rather bizzar statement.
 It would be good for the market but seriously how many of those advised to trade shares with their retirement money will lose more than they gain? Unless you've had years of experience which most retirees dont have. Bad advise imo.


----------



## brty

jancha,

Currently nearly all self funded retirees have money in the stockmarket, often with managers that charge a fee to invest in pretty much the indexes, with a prerformance that lags the indexes. Learning to take care of their own money is what I would recommend as nobody will care as much as themselves.

Are you advocating that retirees entrust their future to someone else who earns a fee irrespective of performance? If so I strongly disagree.


----------



## George Washingto

brty said:


> jancha,
> 
> Currently nearly all self funded retirees have money in the stockmarket, often with managers that charge a fee to invest in pretty much the indexes, with a prerformance that lags the indexes. Learning to take care of their own money is what I would recommend as nobody will care as much as themselves.
> 
> Are you advocating that retirees entrust their future to someone else who earns a fee irrespective of performance? If so I strongly disagree.




A fund that hugs the index minus fees, although not an ideal solution, is a much, much better solution then having gramps day trading to provide money to support himself.


----------



## jancha

brty said:


> jancha,
> 
> Currently nearly all self funded retirees have money in the stockmarket, often with managers that charge a fee to invest in pretty much the indexes, with a prerformance that lags the indexes. Learning to take care of their own money is what I would recommend as nobody will care as much as themselves.
> 
> Are you advocating that retirees entrust their future to someone else who earns a fee irrespective of performance? If so I strongly disagree.




Bert. Certainly not suggesting that. 
There are different ways in which to invest your own money but to suggest to an inexperienced retiree that only way to add to your funds by learning to trade shares on daily basis is not good advice. What % do you think will be successful in making a profit day trading?   
At least with sound dividend paying companies they can keep an eye on the market and pull out of it when needed and re enter when things are looking better. Easier than what Tech saying. 
I dont think trading on a daily basis is that simple unless your experienced in knowing your trade and as with all other trades it takes years of learning. 
 I can see if retirees did what's suggested here who would profit from it.


----------



## brty

jancha,

I did not mention day trading, neither did Tech/A, though he did mention time frames of more than a week could be disappointing, a premis I disagree with.
I mentioned learning to trade; everyone involved with the stockmarket trades, whether you use a fund or do it yourself. You still have to choose the fund manager and decide when to enter and exit, in other words trade it. 

I did not mention day trading at all, and I know Tech/A has mentioned in the past how boring it is to sit in front of a screen all day, something I have experienced and entirely agree with. That does not sound like someone suggesting day trading. 

If you disagree with the concept of retirees learning to trade, then what would you have them do with the funds, put it in a bank and earn small and shrinking interest?


----------



## Boggo

brty said:


> I did not mention day trading, neither did Tech/A, though he did mention time frames of more than a week could be disappointing, a premis I disagree with.
> I mentioned learning to trade; everyone involved with the stockmarket trades, whether you use a fund or do it yourself. You still have to choose the fund manager and decide when to enter and exit, in other words trade it.
> 
> I did not mention day trading at all, and I know Tech/A has mentioned in the past how boring it is to sit in front of a screen all day, something I have experienced and entirely agree with. That does not sound like someone suggesting day trading.
> 
> If you disagree with the concept of retirees learning to trade, then what would you have them do with the funds, put it in a bank and earn small and shrinking interest?




At last, a sensible post - thanks brty.

Those who confuse daytrading with technical analysis and those who see the price of their "investments" as squiggly lines probably need to stop posting and start learning before you become the next generation of Gramps that are dependant on in date daily meds and out of date twice yearly company twaddle.

Those squiggly lines (that confuse those who are dependant on others for belated theoretical opinions) represent the actual value of the items you invest in regardless of what you have been told it should be worth, and if it is not going in the right direction then you are not making money, your friendly and trusted fund manager is still doing ok though.

The squiggly lines below represent the actual weekly values of a company where in August the CEO sold $10.8mill worth of shares for a $5mill profit and his new annual remuneration package is now up to $19mill, a Value Investor perhaps, yeah right.
Some of you guys wouldn't sell though, its got VI all over it


----------



## craft

Joe Blow said:


> There was no need for this thread to turn into a TA vs. FA scrap.




But there is a reason why they always do!




Joe Blow said:


> I have tried to clean it up a little by removing some off topic posts, and ones containing personal attacks, so let's please try and keep this thread both civil and on topic from this point forward.
> 
> It's far better to have a constructive discussion, even one that's a bit heated at times, than one riddled with insults and off topic posts. Any further off topic posts or ones containing insults or personal attacks will be removed.
> 
> Please use your ignore lists if you feel the need.





There was no childish personal attack - I called somebody a troll because that is how they are acting and I'm sure I'm not the only one that thinks that.

Obviously you don't see things the same way.



Joe Blow said:


> I sincerely hope that nobody leaves the forum over a relatively minor incident such as this.




The straw that broke the camel’s back.  Perhaps something to consider when you think about the fading vibrancy of ASF in comparison to other forums.

Please close my account


----------



## George Washingto

Boggo said:


> At last, a sensible post - thanks brty.
> 
> Those who confuse daytrading with technical analysis and those who see the price of their "investments" as squiggly lines probably need to stop posting and start learning before you become the next generation of Gramps that are dependant on in date daily meds and out of date twice yearly company twaddle.
> 
> Those squiggly lines (that confuse those who are dependant on others for belated theoretical opinions) represent the actual value of the items you invest in regardless of what you have been told it should be worth, and if it is not going in the right direction then you are not making money, your friendly and trusted fund manager is still doing ok though.
> 
> The squiggly lines below represent the actual weekly values of a company where in August the CEO sold $10.8mill worth of shares for a $5mill profit and his new annual remuneration package is now up to $19mill, a Value Investor perhaps, yeah right.
> Some of you guys wouldn't sell though, its got VI all over it




You seem to be confused about price and value.


----------



## jancha

Boggo said:


> At last, a sensible post - thanks brty.
> 
> Those who confuse daytrading with technical analysis and those who see the price of their "investments" as squiggly lines probably need to stop posting and start learning before you become the next generation of Gramps that are dependant on in date daily meds and out of date twice yearly company twaddle.
> 
> Those squiggly lines (that confuse those who are dependant on others for belated theoretical opinions) represent the actual value of the items you invest in regardless of what you have been told it should be worth, and if it is not going in the right direction then you are not making money, your friendly and trusted fund manager is still doing ok though.
> 
> The squiggly lines below represent the actual weekly values of a company where in August the CEO sold $10.8mill worth of shares for a $5mill profit and his new annual remuneration package is now up to $19mill, a Value Investor perhaps, yeah right.
> Some of you guys wouldn't sell though, its got VI all over it




Boogo you are so condescending it aint funny. What gives you the right to tell members of the forum when they should post and when they shouldn't. The information you deliver is useful but your back handed comments are not. This is part of the reason why it becomes a slinging match!

I can understand why craft is leaving the forum. 

Berty I'm not saying retirees shouldn't learn to trade. I disagree in what Tech is advising in the way retirees should trade. There are safer easier methods imo.


----------



## McLovin

...Can't be bothered anymore.


----------



## robusta

McLovin said:


> ...Can't be bothered anymore.




+ 1 while I am learning something, but one side saying it's black while the other it's white.
Enough allready.


----------



## tech/a

robusta said:


> + 1 while I am learning something, but one side saying it's black while the other it's white.
> Enough allready.




Was crook last night and now at the office.
I think if anything my brevity has caused issues
within the topic. I intend to answer all comments relative
in more detail tonight.

I will open a seperate thread as this only losely
relates to robustas thread.


----------



## jancha

jancha said:


> Bert Forget the Squiggly line bit but I think the question is quite relevant. He's simply asking a question on Techs  seriousness with retirees solution to learn to trade in shares in order to get ahead.
> I find that a rather bizzar statement.
> It would be good for the market but seriously how many of those advised to trade shares with their retirement money will lose more than they gain? Unless you've had years of experience which most retirees dont have. Bad advise imo.




This is probably better explained in what i'm saying Berty.

Technical analysis and systems to exploit the results of that analysis with consistent results takes years to accomplish - if ever - some people never achieve a consistent system. I've been doing technical analysis for a while now and I'm still learning and will probably do so until they put me in the ground. What may work and be extremely successful for one person may fail abysmally for the next person. (It's a bit like Schrodingers Cat for the stock market - your OWN emotional state can have an effect on the way that you perceive the information you are trying to extract.)


----------



## jancha

tech/a said:


> Was crook last night and now at the office.
> I think if anything my brevity has caused issues
> within the topic. I intend to answer all comments relative
> in more detail tonight.
> 
> I will open a seperate thread as this only losely
> relates to robustas thread.




Hope your feeling better Tech too much whiskey in your coffee will have that effect.lol
Looking forward to your new thread.


----------



## Julia

brty said:


> jancha,
> 
> Currently nearly all self funded retirees have money in the stockmarket, often with managers that charge a fee to invest in pretty much the indexes, with a prerformance that lags the indexes. Learning to take care of their own money is what I would recommend as nobody will care as much as themselves.



+1.  It is, however, pretty hard to persuade people of this.  Despite the high stakes, there seems an astonishing level of inertia when it comes to acquiring some basic financial literacy.



George Washingto said:


> A fund that hugs the index minus fees, although not an ideal solution, is a much, much better solution then having gramps day trading to provide money to support himself.



This rather rude comment seems to suggest that anyone over 30 lacks the intellectual and practical capacity to appropriately invest on their own behalf.  I know a number of people - retired - who are way more successful than most fund managers, so maybe reconsider your pejorative remarks about older people.



McLovin said:


> ...Can't be bothered anymore.



Imo there's plenty to learn from one another.  I don't see why so many have such fixed views about only one approach being valid.  The discussion should be useful to us all, rather than the inevitable slanging match where someone always gets offended and huffy.


----------



## McLovin

Julia said:


> Imo there's plenty to learn from one another.  I don't see why so many have such fixed views about only one approach being valid.  The discussion should be useful to us all, rather than the inevitable slanging match where someone always gets offended and huffy.




I don't disagree. In reality, the sledging seems to be fairly one sided. Every now and then you get the first time poster who says things about squiggly lines, or how retarded FA is, they're easy to ignore. It's the constant attitude of certain posters that anyone who doesn't follow their methodolgy is wrong and couldn't possibly be making money and is basically a moron.

Of the regular FA posters on here (skc, Ves, craft, ROE, robusta, myself and others) I have not seen disparing remarks about TA being made, but we're constantly having to defend ourselves. It gets a bit tiring when you're basically called idiotic for doing something different, that does work.

craft is absolutly right that this is the straw that broke the camel's back.


----------



## PinguPingu

Julia said:


> +1.  It is, however, pretty hard to persuade people of this.  Despite the high stakes, there seems an astonishing level of inertia when it comes to acquiring some basic financial literacy.




Inertia and time constraints, Julia. My Dad in his mid 50's is very intelligent and capable in his medical field, but lacks a lot of investment knowledge. The SMSF adviser he pays something around 5,500 a year to see him twice a year where all he does is tell him to put more money in cash or maybe some Australian bond fund. At the start he was given a 'stock standard' package of ASX100 shares that included arguably terrible companies to invest at the time including LEI, DJS and QBE. 

However, he just doesn't have the time to really 'learn' how to trade or even invest as he works 6 days a week, 8-9 hours a day most weeks. For a birthday present I've bought a years subscription to the Eureka report but he hardly gets time to even glance over that. It's just awful watching this guy who couldn't give two ****s about how my Dad's super is going and half the time in there investment meeting catch ups boasts how his trades are going. 

He's definitely gotten sick of it and will be moving to Dixon's I think, although I'm not sure about how good they're gonna be either - he just wants someone competent who actually cares about the performance of his fund. 

But then I look at people around my own age of young 20's with plenty of time on their hands and not many people apart from those in Commerce related educations seem to care enough to get interested in about their Finances either and probably wont anytime in the future.  

Back to Robusta, good to see things are back on top mate, love your thread.


----------



## RottenValue

McLovin said:


> It's still working, even robusta would be ahead if it wasn't for his leverage.
> 
> There are plenty of people on here using fundamentals and making money, myself included (25% ytd, on a decent amount of capital, without going into detail it's seven figures). In my experience, it's become easier to find value and make money post GFC than in the years 2003-2007, when the king tide lifted everything, regardless of how rubbish it was.
> 
> You seem to attribute poor analysis as being the result of FA being flawed, which is wrong.




Fundamentals working fine for me as well, just checked to see that up 22% ytd which equates to a bit over $150K.  Good market for me but I have been averaging 15% over the past 3 years so struggle with the "only works in good market" comment.

I admit to having no understanding, or interest, in TA as the concept makes no sense to me.  As a mathematician, engineer and later in life IT consultant, I laugh when I hear discussion about Elliiot Waves, Fibonacci retracements and other pseudo science on YMYC but hope that the guest actually uses the system rather than just sells it.

The worst thing about FA is that it can be very boring, do the work, select the stock, be committed and then wait until it reaches a point where it is over priced.  Sell and then repeat.  Process and patience.  If you dont have the temperament, then trading is probably the alternative.

So maybe just separate the two teams and have them play their own sport - the FA guys know that it works and can sleep at night.  Maybe the same is true of the TA guys


----------



## tech/a

My reply is in the thread

In the interests of Clarity.


----------



## Julia

PinguPingu said:


> Inertia and time constraints, Julia. My Dad in his mid 50's is very intelligent and capable in his medical field, but lacks a lot of investment knowledge. The SMSF adviser he pays something around 5,500 a year to see him twice a year where all he does is tell him to put more money in cash or maybe some Australian bond fund. At the start he was given a 'stock standard' package of ASX100 shares that included arguably terrible companies to invest at the time including LEI, DJS and QBE.
> 
> However, he just doesn't have the time to really 'learn' how to trade or even invest as he works 6 days a week, 8-9 hours a day most weeks.



Reaperman, your dad doesn't lack time.  We all have a given amount of time after work commitments have been met.  It's like people who say "oh, I can't help being overweight:  I don't have time to exercise."

Rubbish.  If something is a priority for you - and I'd have thought securing our financial future would be a priority for most of us - you allocate the appropriate amount of time.  
Watch a few hours less of television.  Do without yet another dinner party with its mindless chit chat.
I have no idea of your father's circumstances, but perhaps making more money simply isn't important to him?
Perhaps he has decided that he has sufficient super already and/or can continue to work into his 70's, so he just doesn't see any real need to change what he's doing now.




> For a birthday present I've bought a years subscription to the Eureka report



Well, good luck with that.  The same goes for most of the tip sheets.
Nothing will replace acquiring your own education and doing your own research.



> but he hardly gets time to even glance over that. It's just awful watching this guy who couldn't give two ****s about how my Dad's super is going and half the time in there investment meeting catch ups boasts how his trades are going.
> 
> He's definitely gotten sick of it and will be moving to Dixon's I think, although I'm not sure about how good they're gonna be either - he just wants someone competent who actually cares about the performance of his fund.



As you've observed, most of these 'advisory' services have their own profitability as their main focus.
If your dad is happy to provide them with their lucrative fees, there's probably little you can do about it.

Nice that you're interested, however.



> But then I look at people around my own age of young 20's with plenty of time on their hands and not many people apart from those in Commerce related educations seem to care enough to get interested in about their Finances either and probably wont anytime in the future.



No.  They will wait until they are approaching retirement age and then start whining that "super is a great con", "it just doesn't work" etc etc.

Your experience endorses what I see all the time.  Perfectly intelligent people who otherwise manage their lives well seem to have some sort of extraordinary blank spot when it comes to money.  They inexplicably seem disposed to continue allowing some incompetent person to manage their future rather than take a few hours a week to learn how to do it themselves.
Beats me.


----------



## Boggo

Julia said:


> Your experience endorses what I see all the time.  Perfectly intelligent people who otherwise manage their lives well seem to have some sort of extraordinary blank spot when it comes to money.  They inexplicably seem disposed to continue allowing some incompetent person to manage their future rather than take a few hours a week to learn how to do it themselves.
> Beats me.




Simple and concise summary, well put


----------



## Julia

Reaperman, here is something for your father to ponder.  It's from Superguide.com.au



> The Ripoll Report provides some key facts:
> 
> There are just over 18,000 financial advisers.
> These advisers work for 749 advisory groups operating via 8000 financial planning practices.
> The most common method for providing such advice is via one of the 160 or so dealer groups operating in Australia. The largest 20 dealer groups hold around 50% of market share.
> Around 85% of financial advisers (that is, more than 15,000 of the 18,000-odd advisers) are associated with product manufacturers in two ways:
> The adviser works within the dealer group and uses the dealer’s support services
> The adviser is directly employed as an authorised representative under the corporate entity’s Australian Financial Service Licence (AFSL).
> 
> From this information (extracted from the Ripoll report, Chapter 2, para 2.4), you can discern that only around 3,000 (18,000 less 15,000) financial advisers in Australia are not associated with product manufacturers (that is only 16-17% of advisers).
> 
> In short, the bulk of the financial advisers in Australia are selling product rather than primarily providing financial advice – operating as salespeople rather than true professionals.
> 
> It is not clear from the information available, how many of those 3,000 advisers who are not associated with product manufacturers, can be considered independent.
> 
> I find it unbelievable that the only list of independent advisers that currently exists is the one that SuperGuide creates and publishes in the article, Financial advice: Only 15 (10 +3 + 2) independent financial advisers in Australia.
> 
> Obviously, I am not convinced that there can only be 15 truly independent financial advisers in Australia but until someone builds a comprehensive list of independent financial advisers, this list of 15 is all that consumers can rely upon. Our aim at SuperGuide is to grow this list of independent advisers until we have hundreds (if not thousands) of independent advisers on the list.


----------



## PinguPingu

Thanks Julia, that article and list I got from the site is very helpful. Amazing, I skimmed over Dixon's fees and they charge ~$82!!! for every listed security bought or sold under them. 

He always seems stressed about his Super and our talks usually turn to what he should do about the situation. I'm sure he can find probably find the time, more he doesn't want to take the responsibility of his actions  There's always someone to blame if things go pear shaped if you're in an industry fund or under an advisor...


----------



## kermit345

Hi guys,

I haven't posted here in some time as been busy with other things, but read through the last few pages and found it very interesting. I'm not going to touch the FA/TA thing as i've discussed it before, both can AND do work, but it depends on the mentality of the person implementing their strategy and what exactly they are implementing.

In reference to the retirees discussion in the last few posts I just wanted to touch on some points. I work in the financial services industry as a paraplanner and our dealer group is non-aligned to the banks. Of our client base I would hazard a guess that maybe 1-10% of our clients take a true interest in what is within their portfolio's, and this is high, pre-GFC that % was even lower as people took less interest. I'm not saying this is the right approach, I firmly believe everyone should take interest in their finances - money makes the world go around. No matter what age you are, having an idea of your budget is a #1 priority, basically all financial strategies revolve around whats coming in and whats going out.

However when it comes to actually being knowledgeable about investments and whats inside their portfolios, its not something people want to think about. I know Julia you say watch a little less TV or have 1 less dinner party but I don't believe its that simple. Investment knowledge is not easy to gain in the first instance, but for pre-retirees AND retirees to do additional education on investments or markets we've found really isn't a priority for many people. Most wish to enjoy their children's lives, grandchildren, travelling or simply being in retirement and this is what they pay a planner for. Not just to maximise returns, but for peace of mind that your not erroding their money either - most people are simply happy with index returns if it means their retirement goals can be met as you've implemented the right strategies pre-retirement to maximise their wealth.

Retirement should be about enjoying what you've built over a lifetime of working and this is what most people do. Complicating that with learning about how to trade securities is something most simply do not want to do as it takes the relaxation out of their retirement.

Again, i'm not advocating that being ignorant of markets/investments is the right way to go, it would be great in an ideal world that everyone was educated on wealth and finance in some shape or form, but its simply not something most aspire to learn.

The problem then becomes the scum that take clients money or use bad investments for kickbacks etc in the finance industry that tarnish it for the rest. But if you do your research and actually interview financial planners rather then them interviewing you, there are plenty of good, honest and hard working individuals out there who can help put peoples mind at ease so they can concentrate on enjoying their life.

Sorry for the off-topic post robusta, i'll leave it at that, just wanted to provide some perspective from someone inside the industry.

Cheers


----------



## Julia

kermit345 said:


> In reference to the retirees discussion in the last few posts I just wanted to touch on some points. I work in the financial services industry as a paraplanner and our dealer group is non-aligned to the banks. Of our client base I would hazard a guess that maybe 1-10% of our clients take a true interest in what is within their portfolio's,



Yes.  This is why they are clients of a financial adviser.  They lack the interest so choose to trust an adviser.
Fine.  Just don't then whine about Super being a con, etc. 



> However when it comes to actually being knowledgeable about investments and whats inside their portfolios, its not something people want to think about. I know Julia you say watch a little less TV or have 1 less dinner party but I don't believe its that simple. Investment knowledge is not easy to gain in the first instance, but for pre-retirees AND retirees to do additional education on investments or markets we've found really isn't a priority for many people.



Again, you are considering a biased sample.  Most retirees - and there are plenty - who are competently running their own financial affairs have had no prior training in any financial field.  They have simply understood that acquiring understanding about investments is much less arcane than self interested advisers would wish us to believe.



> Most wish to enjoy their children's lives, grandchildren, travelling or simply being in retirement



Oh, please.  They can still do that and spend a few hours a week maximising their financial situation.



> Retirement should be about enjoying what you've built over a lifetime of working and this is what most people do. Complicating that with learning about how to trade securities is something most simply do not want to do as it takes the relaxation out of their retirement.



Again, you're quoting what you've seen in your biased sample and extrapolating this to the general population.
In so doing you're painting people over 60 as dopey and uninterested in keeping their minds alive.



> The problem then becomes the scum that take clients money or use bad investments for kickbacks etc in the finance industry that tarnish it for the rest.



Quite so.  If people had even basic financial literacy they would have more chance of avoiding such shonks.

I appreciate your posting your point of view, and likewise apologise to Robusta for further diverting the thread.


----------



## kermit345

Julia said:


> Again, you are considering a biased sample.  Most retirees - and there are plenty - who are competently running their own financial affairs have had no prior training in any financial field.  They have simply understood that acquiring understanding about investments is much less arcane than self interested advisers would wish us to believe.
> 
> 
> Oh, please.  They can still do that and spend a few hours a week maximising their financial situation.
> 
> 
> Again, you're quoting what you've seen in your biased sample and extrapolating this to the general population.
> In so doing you're painting people over 60 as dopey and uninterested in keeping their minds alive.




In reference to quotes above, i'm certainly not saying people over 60 are dopey or uninterested in keeping their minds active, more just that they are uninterested in finance/investments. The knowledge that many people over 60 have is amazing, i'm just saying their is a general lack of interest in finance/investments and while it is growing its still quite small - not just in the sample size of our office but of many offices as i've talked to a lot of advisers at national conferences etc. This is why financial planning is such a new industry relative to painters, builders, accountants, doctors etc, the interest is growing but its still something many don't want to understand or find it hard to understand.

Maybe where you live its quite different which is fair enough, you may be in a well educated suburb of a major capital city - big stereotype there by me but i'll put down a hunch that i'm right haha.

If people want to take it on board to handle their wealth personally and spend that time a week educating themselves AND playing with their investments then more power to them, I just don't believe its something the majority do currently, although a lot more do it now then 10-20 years ago.


----------



## tech/a

I have 3 mates who are Financial advisers.

Through them I have met many others at functions.
I have in the past also asked for advise on my own portfolio.

I have found in general that the *Average person *will have less than $100K to retire on so the help of an F/A is pretty limited. Joe Average at this level has little or no interest in his finances--he doesnt have a lot to be interested in.

However the F/A's all want the Whales.
High nett worth inividuals with more than $500K capital for investment.
These guys are pretty rare. They also (In General) know exactly what their capital is doing and where it came from.

*More importantly those financial advisers who are falling over themselves to get their business
are doing all they can to get themselves in a financial position their Whale Clients are in!*

Leased BM'S Mega mortgages in the best suburbs and little disposable income.
Live week to week.

Needless to say I have my own SMSF
and I agree with Julia.


----------



## Ves

Julia said:


> Oh, please.  They can still do that and spend a few hours a week maximising their financial situation.



If I did not have the time or inclination I would set-up something similar to the "permanent portfolio" which only requires rebalancing at lengthy intervals.

I won't write about what this actually entails, but if you are interested plug it into Google - there is plenty there to read.

I guess that might disappoint some people (and give people at dinner parties something to have over you), but for most people the _passive alternative_ is the best course of action and should still result in them preserving their wealth from the hidden erosion of inflation.

I find it more common that people who have put fanciful amounts of hours into investing over the years still fail to do better than many of the passive alternatives available to them.  Time and education alone do not gaurantee results and a lot of it comes down to temperament - which cannot be taught.

Financial planners create diversification not wealth. This is a common misconception - by both the industry and the public in general.


----------



## McLovin

tech/a]However the F/A's all want the Whales.
High nett worth inividuals with more than $500K capital for investment.
These guys are pretty rare. They also (In General) know exactly what their capital is doing and where it came from.[/QUOTE]

This is true of brokers said:


> If I did not have the time or inclination I would set-up something similar to the "permanent portfolio" which only requires rebalancing at lengthy intervals.
> 
> I won't write about what this actually entails, but if you are interested plug it into Google - there is plenty there to read.
> 
> *I guess that might disappoint some people (and give people at dinner parties something to have over you), but for most people the passive alternative is the best course of action and should still result in them preserving their wealth from the hidden erosion of inflation.*
> 
> I find it more common that people who have put fanciful amounts of hours into investing over the years still fail to do better than many of the passive alternatives available to them.  Time and education alone do not gaurantee results and a lot of it comes down to temperament - which cannot be taught.
> 
> Financial planners create diversification not wealth. This is a common misconception - by both the industry and the public in general.




+1.

Especially the bolded part.


----------



## kermit345

tech/a said:


> I have 3 mates who are Financial advisers.
> 
> Through them I have met many others at functions.
> I have in the past also asked for advise on my own portfolio.
> 
> I have found in general that the *Average person *will have less than $100K to retire on so the help of an F/A is pretty limited. Joe Average at this level has little or no interest in his finances--he doesnt have a lot to be interested in.
> 
> However the F/A's all want the Whales.
> High nett worth inividuals with more than $500K capital for investment.
> These guys are pretty rare. They also (In General) know exactly what their capital is doing and where it came from.
> 
> *More importantly those financial advisers who are falling over themselves to get their business
> are doing all they can to get themselves in a financial position their Whale Clients are in!*
> 
> Leased BM'S Mega mortgages in the best suburbs and little disposable income.
> Live week to week.
> 
> Needless to say I have my own SMSF
> and I agree with Julia.




Obviously F/A's want HNW clients because they are the ones willing to pay for the advice, and I don't just mean investment advice, I mean strategic advice. However if you have someone that only has $50k in super and minimal investments but is still willing to pay for the advice, F/A's wont turn them away anymore. With the regulations changing towards Fee For Service rather then a % of FUM, Advisers don't really care as much how much you currently have, its more about if your willing to pay for their advice that covers the full range of your financial position (Estate Planning, tax reduction, superannuation, investment, financial goals, risk insurance etc etc.)

HNW clients are always going to be preferred by F/A's cos they are typically more willing to fork out for quality advice.

BTW, I don't disagree with Julia that people, particularly those aged over 40 need to take a vested interest in their finances and at least attempt to understand their superannuation (i.e. most people just select the balanced option on their industry fund and never think of it again). I'm just saying that majority do not do this at the moment and that while the landscape is changing, its a slow process because the old adage that accounting/finance/numbers are dry and boring means people take a hands off approach and leave it to the 'professionals'. Note professionals is in quotes as finding an honest and quality financial planner who is actually a professional isn't as easy as many would hope, mind you many are trying to rectify it.


----------



## Julia

kermit345 said:


> Maybe where you live its quite different which is fair enough, you may be in a well educated suburb of a major capital city - big stereotype there by me but i'll put down a hunch that i'm right haha.



On the contrary, I live in a regional centre (pop 55,000) which actually has a demographic bias to people on welfare, so couldn't be more opposite to your suggestion.
I agree, however, that you'd on the whole find more financially aware people in the sort of environ you describe.



tech/a said:


> I have found in general that the *Average person *will have less than $100K to retire on so the help of an F/A is pretty limited. Joe Average at this level has little or no interest in his finances--he doesnt have a lot to be interested in.



And there you have probably the essence of the problem.  It's circular.  As long as Joe Average considers what he has to be not worth his interest, thus it will continue.  



Ves said:


> I find it more common that people who have put fanciful amounts of hours



"Fanciful" amounts of hours?  Such as?


> into investing over the years still fail to do better than many of the passive alternatives available to them.  Time and education alone do not garantee results and a lot of it comes down to temperament - which cannot be taught.



Time certainly doesn't.  I don't believe you can equally dismiss the results of education.

On the Storm Financial thread, one burned investor said he had done months and months of research.
I asked if could share with us the nature of this research.  The response was in essence that he'd taken the Storm strategy to various financial advisers and his bankers.
He did what he thought best, obviously, but to my mind that is not research.  The strategy involved borrowing heavily against the home, buying shares in a Storm badged index fund with that money and then taking out a margin loan against those shares purchased with that borrowed money.

Surely you don't need anyone to tell you that investing in a volatile entity with double gearing is hugely risky?  There was no real 'education' required, just a modicum of common sense.

So your suggestion that temperament plays a part is reasonable.  



> Financial planners create diversification not wealth.



That's rather a wide generalisation.  Diversification is not everything.  Markets are cyclical.  Imo when e.g. real estate is rising more than shares, it makes more sense to be in real estate and vice versa.
And there comes a time, especially in retirement, when capital preservation is the most logical priority.  If that means moving to cash for the appropriate time, then that makes more sense to me than being 'diversified' into areas which are losing money.




McLovin said:


> This is true of brokers, FP, banks, anyone. The more money you are worth to them, the more they are going to tailor a portfolio to you rather than just taking a cookie-cutter approach. I don't know about FP's but most brokers consider a HNW client someone with at least $4-5m. And obviously you have to be trading frequently enough so they can clip the ticket.



That certainly applies to full service brokers, but probably  not to financial planners et al who charge a % of FUM.




kermit345 said:


> HNW clients are always going to be preferred by F/A's cos they are typically more willing to fork out for quality advice.



Or woefully incorrect advice as was experienced by clients of Storm Financial who paid 7% commission on FUM.



> I'm just saying that majority do not do this at the moment and that while the landscape is changing, its a slow process because the old adage that accounting/finance/numbers are dry and boring means people take a hands off approach and leave it to the 'professionals'. Note professionals is in quotes as finding an honest and quality financial planner who is actually a professional isn't as easy as many would hope, mind you many are trying to rectify it.



Yes, you're right, much as I rail against it.  I come across people with money in public super funds who do not even know what option they have, eg balanced, conservative, growth etc.  I ask, and they just look blankly at me.

I know I'm in danger of trying everyone's patience here with my irritation at this, but hell, it's not as if they're uninterested in politics, or learning a new language etc.  The low levels of Super that most people have should worry them enough to do something about it.  My frustration comes not from the people who are intellectually or socially disadvantaged, but those who are well educated, have successful careers in their chosen field, yet continue to say "oh god, I can't believe how little Super I have" yet do absolutely nothing about changing this.
The demographics of an aging population suggest the old age pension will have to become inadequate in a couple of decades, so the pressure is absolutely there to not depend on it.


----------



## kermit345

Julia said:


> Or woefully incorrect advice as was experienced by clients of Storm Financial who paid 7% commission on FUM.
> 
> Yes, you're right, much as I rail against it.  I come across people with money in public super funds who do not even know what option they have, eg balanced, conservative, growth etc.  I ask, and they just look blankly at me.
> 
> I know I'm in danger of trying everyone's patience here with my irritation at this, but hell, it's not as if they're uninterested in politics, or learning a new language etc.  The low levels of Super that most people have should worry them enough to do something about it.  My frustration comes not from the people who are intellectually or socially disadvantaged, but those who are well educated, have successful careers in their chosen field, yet continue to say "oh god, I can't believe how little Super I have" yet do absolutely nothing about changing this.
> The demographics of an aging population suggest the old age pension will have to become inadequate in a couple of decades, so the pressure is absolutely there to not depend on it.




Storm was in a league of its own in terms of fees. Most financial advisers will charge maybe 1% per annum on your account for ongoing monitoring and advice up to a maximum of say $10k (Note this is as far as i've seen, it could be different in offices where clients have $4+ mill of assets) and typically charge around $2k to $10k for the strategic advice upfront depending on how complex. Storm on the other hand had upfront fees that sometimes reached $20-40k on $400k of net assets - this should ring alarm bells straigh away however as we've been discussing at the root of the problem is a lack of willingness to educate themselves and also human nature to trust a 'professonal'. We dealt with a ex storm client, had $500k from death of her husband and needed to support herself and child, storm did their tricks and got a margin loan to match that $500k and put her into their managed funds that are internally geared as well, you know the rest - oh and the upfront fee was $20k from memory.

I totally agree with you though Julia in terms of well-educated people neglecting their finances and then complaining. Being in the finance industry, some of the derogatory things people say or complaining you hear is astounding, they expect their SG to simply grow infinitely with none of their input. However the tide is slowly changing post-GFC, people are beginning to ask more questions and show more interest, it just disapointing its only started to happen due to poor performance recently. If people took an interest in their finances and budgetting early in life they'd really understand how some people become so wealthy.

Theres no special tricks to saving an extra $200 a month in an account you don't touch, or doing a personal contribution to get the government co-contribution each year, or salaray sacrificing just a few thousand a year - they all sound like insignificant things to do and so they get discarded but its amazing the difference all these minor things combined can make over a 10, 20, 30+ year timeframe.

Anyway, i'm well off-track now. Maybe we need another thread for this as well, just kidding. In the interest of getting Robusta's thread back on track are there any stocks the FA crew in here have been taking an interest in lately? Last I ran a few of me screeners I found it very difficult to find anything of interest, almost all the stocks returned in my screeners were mining or mining service/engineering companies which don't float my boat at the moment.


----------



## Julia

kermit345;738865[/QUOTE said:
			
		

> Anyway, i'm well off-track now. Maybe we need another thread for this as well, just kidding



It's a topic worth pursuing, even just in the hope that a few people might read the comments and reconsider their inertia.

Again, Robusta, apologies for the diversion of your thread and appreciation of your tolerance.


----------



## robusta

I agree Julia it is an important subject I am just sorry I don't have more time at the moment to participate in the discussion and that the people that need to read it will probably never look at this forum let alone this thread.


----------



## robusta

*PORTFOLIO UPDATE*

This portfolio has been going for about 18 months now and November was fairly hectic with two positions closed, two added and one increased so time for a update.

Sold KAM for a $647.60 gain and PET for a $240.10 gain with the PRV loss of $53.64 this fy has a gain of $834.06  subtracting this from the previous years loss $3095.16 gives a grand negative total of $2261.10

So far paid the bank $925.73 in interest and charges  when this is added to last years total of $2303.28 this brings the total I have paid to $3229.01

Received $833.09 in dividends plus $331.46 franking credits when we add to last years dividends $960.33 and franking credits $383.34

The total is $1793.42 in dividends plus $714.18 franking credits.

So that is *loss of $3696.69*

Better have a look at where the open positions are (including brokerage)

Open Positions
Bought:
1115    x MTU    @   $2.62      =    $2941.25        08/08/11
65       x COH     @   $45.85    =    $3000.20        30/09/11
1373   xOKN       @ $1.455      =    $2017.67       23/11/11                                                                                                                                    
1023 x NVT        @ $2.93        =    $3017.34        02/02/12           
972 x TGA          @ $1.505          =$1482.81        05/04/12
1074 x TGA         @$1.395          =$1518.18        26/04/12
1912 x DTL         @1.045            =$2017.99        18/05/12
278  x MTU         @$2.66           =$739.48           21/05/12 (rights issue)
2089 x DTL         @$0.92           =$1941.83         18/06/12
1685 x SWL        @$1.18           =$2008.25          19/06/12
1412x EZL          @ $1.055        = $1509.61         17/07/12
843 x SWL          @ $0.895        = $774.44           26/07/12
1660 xIPP           @ $0.915        = $1538.85         14/11/12
867 x TGA          @ $1.745        = $1532.87          20/11/12
1182 xHHL          @ $2.85          = $3388.65         23/11/12
Subtotal      $ 29,429.42

Current Portfolio Market Value

65        x COH       @$76.96  =$2002.20             +66.74%
4001    x  DTL       @$1.25    =$5001.25             +26.3%
1412     x EZL        @ $.99  = $1397.88              -7.4%
1182    x HHL        @ $2.59  =$3061.38              -9.66%
1660  x IPP           @ $0.83 = $1377.8               -10.47%
1393    x MTU       @ $4.18  = $5822.74             +58.2%
1023 x NVT          @ $4.60  = $4705.8               +55.96
1373  x OKN         @$1.20   = $1647.6               -18.34%
2528  x SWL         @$0.79 =$1997.12                -28.23%
2913  x TGA          @ $2.04 =$5942.52               +31.07%

Subtotal = $35,956.49


This brings paper profit considering the open positions to  *$2830.38*

The $50/week I am throwing at the line of credit now totals $3300.00
So the return on my contributions is around +85.77%.

I would work out the CAGR on that return over 18 months but I don't consider the time period to be meaningful, after five years the number may mean something.


----------



## skc

robusta said:


> This brings paper profit considering the open positions to  *$2830.38*
> 
> The $50/week I am throwing at the line of credit now totals $3300.00
> So the return on my contributions is around +85.77%.
> 
> I would work out the CAGR on that return over 18 months but I don't consider the time period to be meaningful, after five years the number may mean something.




I'd say you paid a $3000 lesson in the form of MCE, and you are actually up ~$6000.

Most following the thread can see how you've found your style and evolved your approach over the 18 months and made it work reasonably well for you.

Well done


----------



## robusta

skc said:


> I'd say you paid a $3000 lesson in the form of MCE, and you are actually up ~$6000.
> 
> Most following the thread can see how you've found your style and evolved your approach over the 18 months and made it work reasonably well for you.
> 
> Well done




Thank you sic, there has been a lot to learn over they period for me with no lesson more important or painful than MCE. The % return at the moment does not mean a lot considering the leverage used and the volatility of the market recently. Hopefully I will keep on learning and evolving my investment style. There are a few investors on this forum and in print I would be happy to emulate.


----------



## robusta

November was a really busy month for me, I missed updating the position in OKN on the 23/11.

Here is my original post when I took the position.




robusta said:


> *NEW INVESTMENT*
> 
> OKN - Oakton Limited
> 
> Bought 1373 shares @ $1.455 = $1997.72
> 
> Oakton are a IT services business in the same sort of space as DWS, DTL et al.
> 
> I like OKN because they have been investing a lot into the business with a eye on the future, if the strategy works out growth should be satisfactory. In the meantime the nice dividend yield should make the wait bearable.
> 
> This is the smallest pisition I have taken to date due to one eye on current market volatility and the other eye on taking a position in DWS - at the right price.




So $2017.67 invested with dividends received totaling $151.04. that is a yield of a bit over 7.48% this more than covers my cost of capital.

The market if you take todays closing price of $1.22 is offering to buy back my shares for $1675.06. This is probably a result of the flat/falling EPS with a resultant doubt over the sustainability of the dividend yield. This entire sector is under margin pressure but my thesis for buying and holding OKN is that the offshore head count should result in a gain in market share while maintaining a decent margin. OKN have been promising for a while now, the upcoming half year results and outlook will be a major factor in my decision to hold or sell.


----------



## robusta

Thought I would take a look at how the portfolio is looking compared to a year ago.




robusta said:


> *PORTFOLIO UPDATE*
> Capital gains (losses) ($5049.29)
> Interest Paid / bank charges    = $1441.55
> Brokerage Paid =  $418.60
> Dividends Received = $453.16      Franking credit = $194.21
> 
> Tax Position, Capital Gains (Losses), Brokerage, Interest
> ($6,456.28) loss   Franking credits = $194.21
> 
> Open Positions
> Bought:
> 853      x CCP     @    $4.48  = $3821.44    26/07/11
> 1115    x MTU    @   $2.62   = $2921.30    08/08/11
> 520      x CCP     @    $3.83    = $1991.60    08/08/11
> 65       x COH     @   $45.85=    $2980.25   30/09/11
> 1373   xOKN       @ $1.455 =    $1997.72)  23/11/11
> 837x MCE          @ $3.08 =   $2577.96      21/12/11
> 
> Subtotal      $ 16,290.27
> 
> Current Portfolio Position
> 
> 1373     x  CCP      @ $4.58  = $6288.34
> 65        x COH       @$62.20  =$4043.00
> 837    x   MCE     @ $3..10  = $2594.70
> 1115    x MTU       @ $2.89 = $3222.35
> 1373  x OKN         @$1.265= $1736.85
> 
> Subtotal = $17885.24
> 
> 
> Total realised and unrealised loss -21.37% or * - $4,861.31 *
> Cash contributed $880.00 ($40/week)
> 
> Realised return on contributed equity -~ 833 %
> 
> Return on contributed equity             -~652%
> 
> Credit available $7946.73




Here is how things are looking now.

*PORTFOLIO UPDATE*



Capital gain of $834.06  subtracting this from the previous years loss $3095.16 gives a grand negative total of $2261.10

So far paid the bank $1071.82 in interest and charges  when this is added to last years total of $2303.28 this brings the total I have paid to $3375.10

Received $833.09 in dividends plus $331.46 franking credits when we add to last years dividends $960.33 and franking credits $383.34

The total is $1793.42 in dividends plus $714.18 franking credits.

So that is *loss of $3842.78*

Better have a look at where the open positions are (including brokerage)

Open Positions
Bought:
1115    x MTU    @   $2.62      =    $2941.25        08/08/11
65       x COH     @   $45.85    =    $3000.20        30/09/11
1373   xOKN       @ $1.455      =    $2017.67       23/11/11                                                                                                                                    
1023 x NVT        @ $2.93        =    $3017.34        02/02/12           
972 x TGA          @ $1.505          =$1482.81        05/04/12
1074 x TGA         @$1.395          =$1518.18        26/04/12
1912 x DTL         @1.045            =$2017.99        18/05/12
278  x MTU         @$2.66           =$739.48           21/05/12 (rights issue)
2089 x DTL         @$0.92           =$1941.83         18/06/12
1685 x SWL        @$1.18           =$2008.25          19/06/12
1412x EZL          @ $1.055        = $1509.61         17/07/12
843 x SWL          @ $0.895        = $774.44           26/07/12
1660 xIPP           @ $0.915        = $1538.85         14/11/12
867 x TGA          @ $1.745        = $1532.87          20/11/12
1182 xHHL          @ $2.85          = $3388.65         23/11/12
Subtotal      $ 29,429.42

Current Portfolio Market Value

65        x COH       @$79.10  =$5141.50                      +71.37%
4001    x  DTL       @$1.285   =$5141.29                     +29.84%
1412     x EZL        @ $1.00  = $1412.00                      -6.47%
1182    x HHL        @ $2.76  =$3262.32                       -3.73%
1660  x IPP           @ $0.90 = $1494.00                       -2.91%
1393    x MTU       @ $4.18  = $5822.74                       +58.2%
1023 x NVT          @ $4.70  = $4808.10                       +59.35%
1373  x OKN         @$1.27   = $1743.71                        -13.58%
2528  x SWL         @$1.07  =$2704.96                         -2.79%
2913  x TGA         @ $2.03 =$5913.39                         +30.43%

Subtotal = $37,444.01


This brings paper profit considering the open positions to  *$4171.81*

The $50/week I am throwing at the line of credit now totals $3450.00
So the return on my contributions is around +120.9%.

Credit available $127.33


----------



## Tails

An interesting thread that I've been following for some time. I admire your courage for posting your journey online and wish you all the best for 2013.


----------



## robusta

Not a bad turnaround on a portfolio this size for 12 months but then again the stock market as a whole did ok as well.
Out of the five positions held a year ago three are still in the portfolio, while I am a little annoyed to have sold Credit Corp early this is more than balanced by the lesson learnt in getting rid of Matrix.

Here are some very brief thoughts on the portfolio as it stands.

Cochlear
65        x COH       @$79.10  =$5141.50                      +71.37%
The clear market leader in a segment that is expected to grow by a CAGR of 13.5% through to 2015 I would expect to see dividends grow at about the same rate. The share price would have to jump over $100.00 for me to consider selling in the short term. 

Data # 3
4001    x  DTL       @$1.285   =$5141.29                     +29.84%
Solid business, great ROE, a fantastic dividend. If everything stays the same I will be happy, if they can grow as in the past.

Euroz Limited
1412     x EZL        @ $1.00  = $1412.00                      -6.47%
A brokerage house with massive exposure to the resources boom? Probably difficult to find something more out of vogue but dig a little deeper and you will find good capital managers in control of some quality assets. 

Hunter Hall International Limited
1182    x HHL        @ $2.76  =$3262.32                       -3.73%
Run by value investors but with a poor recent performance and subsequent falling funds under management. Long term record however is excellent.

Iproperty Group
1660  x IPP           @ $0.90 = $1494.00                       -2.91%
The only holding in this portfolio that does not make a profit - yet. Revenue growth however is fantastic and I think IPP has a chance of emulating REA.

M2 Telecommunications
1393    x MTU       @ $4.18  = $5822.74                       +58.2%
This one reads the same as DTL, however I have to keep a eye on the Iprimus purchase.

Navitas
1023 x NVT          @ $4.70  = $4808.10                       +59.35%
Had some drama with regulatory changes recently but the future looks bright Difficult to see the demand for education waning in the future and this business has a fantastic cash flow.

Oakton Limited
1373  x OKN         @$1.27   = $1743.71                        -13.58%
This business has been promising for a while now, would be the first I sell to free up capital.

Seymour Whyte Limited
2528  x SWL         @$1.07  =$2704.96                         -2.79%
Profit downgrade in the previous half year has seen this long established business sold off. New contracts are being won.

Thorn Group
2913  x TGA         @ $2.03 =$5913.39                         +30.43%
Nothing I can add here that has not been said on the TGA thread. Just a solid business with sustainable revenue and good capital management.


----------



## robusta

Tails said:


> An interesting thread that I've been following for some time. I admire your courage for posting your journey online and wish you all the best for 2013.




Thank you tails I am glad you have found it interesting. There is courage then there is not caring too much what others think.


----------



## robusta

*Investment Sold*

Oakton

Sold 1373 @ $1.345 = $1826.73 including brokerage.

That is a capital loss of $190.94

The original investment of $2017.67 earned dividends received totaling $151.04. that is a yield of a bit over 7.48% this more than covers my cost of capital.

Take away the capital loss then add the cost of my capital (between 5.5-6.25%) over that period and things do not look so rosy.

The main reason for the sale is portfolio management. Even though I do not profess to try to time the market I find myself getting nervous when all looks rosy in the financial markets. OKN was simply the holding I had the least confidence in.


----------



## peter2

It might be better to reply on your own thread. 



> poor initial buy decision




Sorry, but you shouldn't ever have this problem again. We all make mistakes and as we gain experience we reduce the number of mistakes. Your investment plan should outline your due diligence. You should tick all the boxes in your investment candidate checklist. Accurate, reliable research is where your edge starts. For a value investor this is the fun stuff (I assume).

I've just noticed the sale of your investment in OKN.  



> The main reason for the sale is portfolio management.




What the heck does this mean? How does this sale benefit your portfolio? Freeing up capital should only be done when you have a higher probability prospect and you wish to take advantage of this new opportunity immediately. 



> OKN was simply the holding I had the least confidence in.




Seems very wishy-washy. If it was a mistake then acknowledge it and understand it and don't do it again. Have the fundamentals in OKN changed? Have you lost confidence in the management team? Have the mgt team failed to enact their business plans. Is the current economic outlook unfavourable for this company?

I suggest you review your risk parameters as this suggests that you were unable to hold this stock through a reasonable fall in price. 

You don't have to be qualified to judge economic conditions. The qualified economists only get it right sometimes. Commonsense is all that is required. Right now at the start of 2013 conditions seem rosier than they have been.

Now, why would you get nervous when all looks rosy? This is the time when you sit back and shout bring it on. You've done all the hard yards and started your investments in solid companies with bright prospects at good prices. A rosy economic condition is exactly what you need to get your anticipated growth in share prices. 

Yes I agree it's difficult not to be distracted by all the media hype, but this should be one of your skills as a value investor. You have to see through all the sentiment and look at the facts, the numbers on a balance sheet, a good understanding of the business you are about to invest in. I won't do this, so I must use a price chart to time my entries. I see the demand of the value investors as they accumulate their positions. You should be buying before me. I'll be selling before you and you should be getting more of the multi-year trends than me. 

You need to evolve a mechanical set of rules to guide your investment business just as I need a set of plans for my trading business.


----------



## systematic

peter2 said:


> What the heck does this mean? How does this sale benefit your portfolio? Freeing up capital should only be done when you have a higher probability prospect and you wish to take advantage of this new opportunity immediately.




Peter2, agree especially with your last comment on the need for a plan, whether investing or trading.  

Just a comment on the above - there can be legitimate reasons for adjusting a portfolio that have nothing to do with whether you like a particular trade.  There could be a rebalancing policy in place, a volatility limit...


----------



## robusta

peter2 said:


> Sorry, but you shouldn't ever have this problem again. We all make mistakes and as we gain experience we reduce the number of mistakes. Your investment plan should outline your due diligence. You should tick all the boxes in your investment candidate checklist. Accurate, reliable research is where your edge starts. For a value investor this is the fun stuff (I assume).




Yes good point, I should get a written investment checklist, you are right the research is fun. 
I try not to make the same mistake twice but seem to have a uncanny ability to think up new ones



peter2 said:


> I've just noticed the sale of your investment in OKN.
> 
> What the heck does this mean? How does this sale benefit your portfolio? Freeing up capital should only be done when you have a higher probability prospect and you wish to take advantage of this new opportunity immediately.
> 
> Seems very wishy-washy. If it was a mistake then acknowledge it and understand it and don't do it again. Have the fundamentals in OKN changed? Have you lost confidence in the management team? Have the mgt team failed to enact their business plans. Is the current economic outlook unfavourable for this company?




The original post was a bit lazy. IMO OKN is probably still a decent investment however my thesis that the offshore headcount would give them a pricing and market share advantage has not been proven. When you add to that I paid a high price this was the stock to go to free up some capital. 
In the past I have remained fully invested when the market has been rising, the only problem is new opportunities normally knock in a falling market. Selling to free up capital in this situation often result in lower prices.



peter2 said:


> I suggest you review your risk parameters as this suggests that you were unable to hold this stock through a reasonable fall in price.




Bought in November 2011 @ $1.455 the 52 week low in that time was $1.00 to be honest at the time OKN hit its lows I had a buy order in the market. (unfulfilled)



peter2 said:


> You don't have to be qualified to judge economic conditions. The qualified economists only get it right sometimes. Commonsense is all that is required. Right now at the start of 2013 conditions seem rosier than they have been.
> 
> Now, why would you get nervous when all looks rosy? This is the time when you sit back and shout bring it on. You've done all the hard yards and started your investments in solid companies with bright prospects at good prices. A rosy economic condition is exactly what you need to get your anticipated growth in share prices.




Does everything seem rosy? The American and European debt levels may cause a few ructions yet. The pundits are predicting a good year for the ASX 200 but even if they are right there will be some fluctuations on the way. 



peter2 said:


> Yes I agree it's difficult not to be distracted by all the media hype, but this should be one of your skills as a value investor. You have to see through all the sentiment and look at the facts, the numbers on a balance sheet, a good understanding of the business you are about to invest in. I won't do this, so I must use a price chart to time my entries. I see the demand of the value investors as they accumulate their positions. You should be buying before me. I'll be selling before you and you should be getting more of the multi-year trends than me.
> 
> You need to evolve a mechanical set of rules to guide your investment business just as I need a set of plans for my trading business.




Thank you for your post Peter I am happy to hold the core of my Portfolio for the long term. Cochlear, Data 3, Hunter Hall, M2 Telecommunications, Navitas and Thorn Group.

The other three holdings (Euroz, Iproperty Group and Seymour Whyte) remain under a closer watch.


----------



## Julia

peter2 said:


> What the heck does this mean? How does this sale benefit your portfolio? Freeing up capital should only be done when you have a higher probability prospect and you wish to take advantage of this new opportunity immediately.



I was about to ask the same question.
Goes also to the philosophy of diversification.  I can't see any point in diversification for the sake of it.
Why would you include stocks from a range of sectors if some of them are doing much less well than others?



> Yes I agree it's difficult not to be distracted by all the media hype, but this should be one of your skills as a value investor.



Just consider how often the so called experts get it wrong.  Just absorb global and national factors as well as your own analysis of the companies concerned (if I have it correct that that's what you value investors do.)



> You have to see through all the sentiment and look at the facts, the numbers on a balance sheet, a good understanding of the business you are about to invest in. I won't do this, so I must use a price chart to time my entries. I see the demand of the value investors as they accumulate their positions. You should be buying before me. I'll be selling before you and you should be getting more of the multi-year trends than me.
> 
> You need to evolve a mechanical set of rules to guide your investment business just as I need a set of plans for my trading business.



Years ago Bunyip made some very pertinent comments about this:


> What very few people ever learn is that the chart is one of the best fundamental analysts you can have on your team.
> A technical analyst utilising a trend riding approach is really using fundamental analysis in the first instance, simply by looking at the chart and identifying the trend of the stock.
> 
> If you'd looked at the plunging charts of Sons of Gwalia, Pasminco, and HIH, there could have been no doubt that investors were dumping these stocks because they had lousy fundamentals.
> 
> Conversely, strong uptrenders like BHP, RIN and WPL clearly had money pouring into them from investors who believed their fundamentals were excellent.
> Incidentally, while Pasminco was plunging south and heading for oblivion, Renee Rivkin was busy talking the stock up and giving it a buy recommendation, based on its good fundamentals!!!!!!!
> 
> I was trolling through some stocks one day when I came across a stock that was downtrending on the weekly chart. I immediately thought 'poor fundamentals' even though I knew nothing about the stock (which happened to be ION).
> A couple of days later I got a call from a friend who is right into fundamental analysis. Just out of curiosity I asked him what he knew about ION. He confirmed that the stock had been getting negative reports in the various financial publications, and was fundamentally considered a bit of a basket case.
> ION, as we know, ended up going broke.
> 
> The concept of using trend analysis to make an assessment of company fundamentals is just so alien to the average fundamentalist that he simply can't accept it as a viable way of assessing whether or not a stock is worth buying.
> 
> Bunyip





> Regarding the discussion about technical analysis vs fundamental analysis, it's worth relating something that Frank Watkins said during his presentation to an ATAA meeting recently.
> Frank started his presentation by asking a confronting question....."How many of you have made a return of 35% or greater from the stockmarket over the last year or so"?
> Only two hands went up among the audience of more than thirty people.
> 
> His next question was "Well, why haven't you? 35% has been the rise of the All Ords over the last year or so. You could have easily outperformed the All Ords if you'd only bought stocks that were outperforming the All Ords, and you'd hung on to them only as long as they continued outperforming. And every time one of your stocks stopped outperforming, if you'd dumped it and replaced it with another outperformer. No fundamental analysis, no assessment of fair value, none of that other time consuming stuff that so many stockmarket players waste their time on.....just buy strongly uptrending stocks that are well and truly outperforming the market average ."
> 
> There is just so much wisdom in Frank's advice, yet so few investors follow it.
> Perhaps the reason they don't follow it is that they tell themselves "Everyone would be doing it if it was that easy".
> Perhaps the reason most investors shun this approach is that it seem just too simple, not complex enough to be any good.
> 
> I'm not sure what the reason is.....all I know is that it never ceases to amaze me that so many investors use complex analysis to achieve mediocre results, when they could be using simple analysis to achieve spectacular results.



NB  Robusta:  none of the above is intended as personal criticism toward you.  Rather just furthering the general discussion.


----------



## robusta

Strange how us humans make simple things more complex than they need to be, with the stock market no exception. There are a few simple techniques that should give a positive return over a decent time period.
1. Buy a ETF and beat the majority of money managers.

2. Buy trending stocks and beat the index (see Julia's post above)

3. But the best quality businesses at a price below what they are worth.

There are probably others but these three seem the simplest to me.


----------



## burglar

robusta said:


> Strange how us humans make simple things more complex than they need to be, with the stock market no exception. There are a few simple techniques that should give a positive return over a decent time period.
> 1. Buy a ETF and beat the majority of money managers.
> 
> 2. Buy trending stocks and beat the index (see Julia's post above)
> 
> 3. But the best quality businesses at a price below what they are worth.
> 
> There are probably others but these three seem the simplest to me.




There is only 26 letters in the alphabet and 10 digits in the number system.
Simple, until you add A HUMAN!


----------



## cynic

burglar said:


> There is only 26 letters in the alphabet and 10 digits in the number system.
> Simple, until you add A HUMAN!




Normally the addition of one human isn't a problem. It's usually the introduction of a second (or third etc.) human that gives rise to complexity. This and numerous other threads like it, are examples of this phenomenon.

Robusta, I admire your courage in being willing to disclose your trading method and thereby exposing it to the appraisal/criticism of others. The polite way in which you've managed to field certain criticisms of your method is commendable.


----------



## Julia

cynic said:


> Robusta, I admire your courage in being willing to disclose your trading method and thereby exposing it to the appraisal/criticism of others. The polite way in which you've managed to field certain criticisms of your method is commendable.



+1.  I share that admiration.


----------



## robusta

cynic said:


> Robusta, I admire your courage in being willing to disclose your trading method and thereby exposing it to the appraisal/criticism of others. The polite way in which you've managed to field certain criticisms of your method is commendable.




Cheers cynic, the fact is I have learned a lot from criticism and welcome it. As for courage? I guess I am a crazy optimist with little regard for my reputation.

Hope you don't mind tech I thought I would answer on this thread where a lot of your points are right on subject.




tech/a said:


> Peter why cant an investor invest technically? There are some great interviews I've read with technical investors who use a 1 mth time frame.




Could be wrong but I think peter was warning me about changing my strategy mid stream.




tech/a said:


> Agree but also agree with Robusta's added exit conditions. But simple should be evolved not purely initiated.




Sorry tech I do not understand the distinction between evolved and initiated in this contexy.




tech/a said:


> Correct me if wrong but I thought value investing was identifying a stock trading below its intrinsic value. Very little if anything to do with "conditions"?
> There are a few who see the current ranging (Last 2 years) as Distribution. Neither accumulation OR Distribution have been confirmed.*
> I would certainly argue that I cannot see the improvement you mention in macro economic conditions-even micro.
> I really dont know that buying your brains out now is a wise idea. the next dip may not be a dip but a bear trend of catastrophic proportions---if you have a contingency for this then fine. A few of us are sitting on the side lines---portfolio wise.




Sorry to drag out one of the most used Buffet quotes but "Be greedy when others are fearful and fearful when others are greedy"

Often the best opportunities come along when market conditions seem terrible, the trick IMO is buying the right businesses in this situation.
The letting profits run thread was me toying with my strategy for selling when others are greedy.






tech/a said:


> And this is Robusta's specific issue I believe --- some great conditions in his plan but* NO IDEA* if when traded together they are long term profitable. He's basically forward testing his ideas. The market is ranging and he continues to find a *KEY* to profit.
> All *WILL* come in a bull market---I my opinion capital preservation and development and testing of his plan/s should be paramount. This *WILL* take some years and a great deal of education---but it will be worth it.
> 
> Evidence then great.If Ben Graham can test for results so to can Robusta and anyone!
> 
> Again he will know when he has results to prove that he knows.
> His trading will reflect his results and he will be far better able to follow his method without addition or subtraction as he will have a blueprint of numbers he can compare with.
> He'll know if that string of losses is out of character---if his R/R is within range of his high and low Deviations set by his Montecarlo testing.
> 
> If you cant do it Robusta pay someone who can---will be a very sound investment in my opinion---*you have some great building blocks*---what you need to know is how to put them together.---in the best building design.




Sorry tech I would love to stand corrected but I don't see the point of forward testing, not even sure how to go about it to tell the truth.
I am not trying to reinvent the wheel, Ben Graham invented the wheel and there is plenty of evidence of outperformers following in his footsteps. 
This portfolio if following a well trodden path despite occasionally straying.


----------



## robusta

*NEW INVESTMENT*

VOC - Vocus Communications

Bought 838 @ $1.79 = $1519.97

The growth is there, the cash flow is OK, there is not too much debt...

I have been thinking about this one for a while as I have a (relatively) large holding in my SMSF and I have been worried about the regular capital raising's for acquisitions. They do seem to be generating a reasonal return on the capital employed. 

Seems it is in my makeup to be a little different, while the majority are chasing dividend yield, I am buying things like VOC and IPP with no dividends on the horizon but with nice growth.


----------



## Ves

Interesting choice - I don't understand Vocus myself - happy to admit it.

I'm really struggling to find much in this market of interest (actually I haven't bought anything since CAB in early December).  I started looking deeper into HHL a few weeks ago, but never finished my analysis. I will get back to it eventually. I think I understand your position a bit better now. The AGM notes have some good stuff.

You should look at PFL.  I think it's a pretty solid company with a great competitive position in its market. Seems to have held up really well. Margins are a bit soft, but it looks cyclical (and due to future investment) rather than structural to me.  It's fairly well priced at the moment though. Maybe the next result will be soft and cause a dive...

I might have to start digging deeper into the market.  Nothing obvious stands out in the "usual suspects." Something around the 100mil market cap range might come up with some luck.


----------



## robusta

Ves said:


> Interesting choice - I don't understand Vocus myself - happy to admit it.




Hate to admit it buy I am not sure I fully understand it myself. Probably should not chase the next big thing in these sexy new industries but I like the management and they have a heap of skin in the game. The margins are good but hard to define the competitive landscape with the massive capex on data centers, isp cables and dark fiber networks worldwide. Hence the small position size. 



Ves said:


> I'm really struggling to find much in this market of interest (actually I haven't bought anything since CAB in early December).  I started looking deeper into HHL a few weeks ago, but never finished my analysis. I will get back to it eventually. I think I understand your position a bit better now. The AGM notes have some good stuff.




Not so long ago there were plenty of interesting stocks going cheap, I agree there are not too many now. I have missed out on CAB a few times now the regulatory environment  does my head in, MMS and CCV are others I have put in the too hard basket.



Ves said:


> You should look at PFL.  I think it's a pretty solid company with a great competitive position in its market. Seems to have held up really well. Margins are a bit soft, but it looks cyclical (and due to future investment) rather than structural to me.  It's fairly well priced at the moment though. Maybe the next result will be soft and cause a dive...




Thank you I will look into it, their pies are good.



Ves said:


> I might have to start digging deeper into the market.  Nothing obvious stands out in the "usual suspects." Something around the 100mil market cap range might come up with some luck.




That is the difficult decision, I probably should show more discipline and keep some capital available for the next inevitable correction.


----------



## slooi1

robusta said:


> Hate to admit it buy I am not sure I fully understand it myself. Probably should not chase the next big thing in these sexy new industries but I like the management and they have a heap of skin in the game.




Robusta,
Isn't that a big risk? I bought VOC 6 months ago, without fully understanding it - sold it at a small profit when I realised I had NO idea how to value the company or determine how it made it's income. Great lesson for me.
While you might be comfortable with it - the hard part for me was when announcements came through, and I had no basis of fact/analysis, other than the price action - I'm not a technical trader. So I sold.
Good luck for this one though!

slooi1


----------



## robusta

slooi1 said:


> Robusta,
> Isn't that a big risk? I bought VOC 6 months ago, without fully understanding it - sold it at a small profit when I realised I had NO idea how to value the company or determine how it made it's income. Great lesson for me.
> While you might be comfortable with it - the hard part for me was when announcements came through, and I had no basis of fact/analysis, other than the price action - I'm not a technical trader. So I sold.
> Good luck for this one though!
> 
> slooi1




Yes it is a risk but if they are right about the nature of the reoccurring revenues and the future growth the profits should follow.


----------



## brty

Robusta, 

For me to understand how you could call this a "value" investment based on the fundamentals, I would like to know given the following, how this is possibly "value"?

In the last 2 years the share price has gone from $1.40, to the current ~$1.80, yet cashflow has fallen from 23.9 c/s to 19.5 c/s. Earnings have fallen from 15.7 c/s to 13.3 c/s. Operating margin from 46.6% to 36.5%, Return on capital from 18% to 13%, Return on equity from 38.7% to 20.1%. Long term debt has gone from $13m to $25m, while the current account looks much worse than either last year or the year before, because of lower cash assets.

To me these sorts of parameters are what fundamental investors would look for in stocks to short! Can you please explain where the fundamental value is here? It's not like there is a dividend to keep you happy.

brty


----------



## robusta

brty said:


> Robusta,
> 
> For me to understand how you could call this a "value" investment based on the fundamentals, I would like to know given the following, how this is possibly "value"?
> 
> In the last 2 years the share price has gone from $1.40, to the current ~$1.80, yet cashflow has fallen from 23.9 c/s to 19.5 c/s. Earnings have fallen from 15.7 c/s to 13.3 c/s. Operating margin from 46.6% to 36.5%, Return on capital from 18% to 13%, Return on equity from 38.7% to 20.1%. Long term debt has gone from $13m to $25m, while the current account looks much worse than either last year or the year before, because of lower cash assets.
> 
> To me these sorts of parameters are what fundamental investors would look for in stocks to short! Can you please explain where the fundamental value is here? It's not like there is a dividend to keep you happy.
> 
> brty




With the up most respect, damn you sir you had to ask the difficult question (although I am glad you did as I should give it more thought).

Vocus are growing fast through buying and upgrading data centers, buying and upgrading dark fibre networks and increasing capacity on the subsea cables. Capital spending over the last three years has gone from -14.3 cps in 2010 to -.15 cps in 2011 to -18.6 cps in 2012. These investments will take some time to pay off. 

Not very scientific I admit but I am working on the theory that if they VOC build it (or buy it) they (the customers) will come. The pure unvarnished truth is I think this sector is set to boom and Vocus is positioned to benefit from that if they are good enough. As you can see I am not confident enough to bet the house on it.


----------



## brty

Robusta,



> I think this sector is set to boom




Why?

The reason why I ask, and this goes for the previous question as well, is that I recently purchased some stock in a company with similar metrics, though it was both "value" as well as technical in my opinion. The stock being Select Harvests. The value I saw though, was from an almond grower, who had 2 poor years, just like SHV, yet he told me his crop this year was much better than the prior ones. I purchased SHV in December at $1.40. This price was at a steep discount to the $3.40 of 2 years ago, yet a good crop would see the profitability rise close to prior levels.

In the case of VOC, it is already at a premium to the price of 2 years ago, so a rise in the fundamental metrics is perhaps already factored in. Do you know of any reason why VOC/the sector might boom? "I think" is not really a value based logical argument.


----------



## robusta

Sorry to take so long to answer brty, I have been very busy...



brty said:


> The reason why I ask, and this goes for the previous question as well, is that I recently purchased some stock in a company with similar metrics, though it was both "value" as well as technical in my opinion. The stock being Select Harvests. The value I saw though, was from an almond grower, who had 2 poor years, just like SHV, yet he told me his crop this year was much better than the prior ones. I purchased SHV in December at $1.40. This price was at a steep discount to the $3.40 of 2 years ago, yet a good crop would see the profitability rise close to prior levels.




You could be right about SHV, I will have to take a closer look.  



brty said:


> In the case of VOC, it is already at a premium to the price of 2 years ago, so a rise in the fundamental metrics is perhaps already factored in. Do you know of any reason why VOC/the sector might boom? "I think" is not really a value based logical argument.




VOC is set to benefit from the explosion in data use from tablets, smart phones, smart tv's...

My thoughts when investing (speculating??) were they should be reaching a critical mass where the cash flows should be able to fund new acquisitions and the growth and the existing businesses revenue should accelerate to spin off more and more cash. 

Now I am not so sure, the depreciation and amortization on the Statement of Comprehensive Income is clouding the issue. The half year report should be out in a few weeks, I will give it some more thought until then. Hopefully I will not be proved guilty of lowering my investment criteria in the absence of decent opportunities.


----------



## craft

robusta said:


> You could be right about SHV, I will have to take a closer look.





I have looked at SHV and concluded that they are now at a competitive disadvantage to Olam. 

That said:

The poorest businesses benefit the most in the short run from an improvement in business/agricultural conditions.

SHV is scrambling to build yield to replace Olam crop. Strategy is high risk, but their survival basically depends on it. The current leverage, operational and financial will respond well to a favourable season.

One to trade based on near term outlook  - but not [yet] one for long term creation of shareholder wealth. 

Olam buying SHV instead of building their own processing facility is a possibility.


----------



## robusta

Another nice little anniversary for this portfolio, 12 months ago today I bought my Navitas holding, along with the usual warnings about buying into a downtrend...

Probably not my smartest move taking profits in CCP at the time, anyway here is my post from last year.



robusta said:


> *NEW INVESTMENT*
> 
> NVT - Navitas Limited
> 
> Bought 1023 @ $2.93 = $2997.39
> 
> Call me crazy if you like given NVT recent earnings downgrade and the rising A$ but I think NVT may be one of the few ASX listed companies with a sustainable competitive advantage.
> 
> Took me a while to understand the business and in the short term operating conditions may remain difficult but I will be shocked if EPS is not at least 3-4 times present levels in 10 years.
> 
> *PART INVESTMENT SOLD*
> 
> CCP - Credit Corp
> 
> Sold 520 @ $5.00 = $2600.00
> 
> To be honest I feel a bit foolish with this one. When I decided to buy NVT a couple of days ago (and placed low ball bid @ $2.820 thought it might be a good idea to take some profits on CCP and rebalance portfolio so I placed sell order @ $4.88
> Anywhoo totally missed the announcement this morning and my order was filled @$5.00
> 
> CCP is still my largest holding - just.




So all up including brokerage $3017.32 invested with a dividend return so far of $199.48 so that is a yield of 6.61% plus $85.49 in franking credits. So happy about that as this covers my cost of capital.

For what it is worth the closing price of $5.04 means the market is valuing my holding at $5155.92.

The first chart is for the year preceding my investment, the second is for the year just gone. Some would call me a lucky bastard, I would have difficulty arguing against this.


----------



## robusta

Probably should point out in case this thread is starting to read like F.I.G.J.A.M (F@#$ i'm good just ask me). My decision to sell CCP, here is my post from then. 



robusta said:


> *Investment sold*
> 
> Credit Corp
> Sold 853 x CCP @ $5.84 = $4981.51
> 
> This is more a portfolio decision, I am starting to see some value in the market (have two unfilled orders at the moment) and I will be investing in the MTU spp.
> 
> CCP is the holding that I think is closest to my estimate intrinsic value so sold to free up cash - and reduce capital losses incurred to date.
> 
> Bring on the volatility, I have no particular macro view of where the markets will go but thought it prudent to have capital available to take advantage in the event of a correction.




CCP is now trading at $9.00 and raising the dividend every half. I guess that is what you would call opportunity cost...

On the subject of portfolio management I am starting to feel a little uncomfortable being almost fully invested at the moment, the recent purchase of Vocus in particular may have been a error.
The first half of one of the most overused quotes, "Be greedy when others are fearful and fearful when others are greedy" has served me OK up until this point but I am starting to see a little greed around. It may be prudent to free up at least 10% of my capital over the next year as selling opportunities present themselves.


----------



## tech/a

10% 
Hardly freeing up capital
60% + I'd have thought.


----------



## robusta

tech/a said:


> 10%
> Hardly freeing up capital
> 60% + I'd have thought.




Well prices would have to run very much into bull market territory for me to sell that much. The plan is to free up enough to take a opportunity that will eventually present itself. Meanwhile the portfolio should be cash flow positive next financial year, (dividends > interest paid) added to the $50/week I am contributing should give me extra capital to invest or pay down debt into the future.


----------



## tech/a

Ok
Sounds like a plan.


----------



## burglar

tech/a said:


> 10%
> Hardly freeing up capital
> 60% + I'd have thought.



Hi tech/a, 

I have a distinct feeling you are visualising a dark future!


----------



## So_Cynical

robusta said:


> Some would call me a lucky bastard, I would have difficulty arguing against this.




I have given bottom buying a lot of thought over the years and have come to a few conclusions.


 Bottom buying is good, the greatest return on capital (both trade & div) can only be done with the cheapest entry.

 Bottom buying can only be done on a down trend and only by accident, as no one knows where the bottom is.

 Bottom buying can only be done deliberately, as in one seeking the bottom.

So its a deliberate act of chance, buying in the hope/belief that it is the bottom, or at least close enough that it doesn't really matter, works really well with an open ended time frame and little or no leverage...its worked out for me that over the last 5 years roughly 1 in 6 of my entry's has been a bottom.

So it would seem that if one consistently seeks bottoms it is bottoms that one will find.


----------



## robusta

So_Cynical said:


> So it would seem that if one consistently seeks bottoms it is bottoms that one will find.




I do like legs and breasts but there is something very attractive about a nice bottom sorry.


----------



## robusta

So_Cynical said:


> I have given bottom buying a lot of thought over the years and have come to a few conclusions.
> 
> 
> Bottom buying is good, the greatest return on capital (both trade & div) can only be done with the cheapest entry.
> 
> Bottom buying can only be done on a down trend and only by accident, as no one knows where the bottom is.
> 
> Bottom buying can only be done deliberately, as in one seeking the bottom.
> 
> So its a deliberate act of chance, buying in the hope/belief that it is the bottom, or at least close enough that it doesn't really matter, works really well with an open ended time frame and little or no leverage...its worked out for me that over the last 5 years roughly 1 in 6 of my entry's has been a bottom.
> 
> So it would seem that if one consistently seeks bottoms it is bottoms that one will find.




Sorry I could not resist that previous post.

Good point's So_Cynical I like that concept that it is a deliberate act of chance, if you try it enough you will hit a few times and hopefully when you miss you buy cheaply enough that it does not matter. I guess this also leads into when to be confident enough to average down and when to leave well enough alone?


----------



## So_Cynical

robusta said:


> I guess this also leads into when to be confident enough to average down and when to leave well enough alone?




Rules, ya gota have em, everyone has to draw a line in the sand somewhere..trend followers follow rules, value investors follow rules and contrarian averagers follow rules.

Personally i allow for 3 average downs of mixed sizes...with a cash invested limit of X that is roughly 9% of my total portfolio value, of the 47 stocks i have held since June 2007 this strategy (to date) has worked in 42 of them...so a 88.6% success rate.



robusta said:


> On the subject of portfolio management I am starting to feel a little uncomfortable being almost fully invested at the moment, the recent purchase of Vocus in particular may have been a error.
> The first half of one of the most overused quotes, "Be greedy when others are fearful and fearful when others are greedy" has served me OK up until this point but I am starting to see a little greed around. It may be prudent to free up at least 10% of my capital over the next year as selling opportunities present themselves.




Good to see im not the only person having these feelings...this rally has brought the market back to the 2009/10 peak and yet nothing has changed that much, i have 5 positions (open trades) now in the sell zone (profit in double figures) and im thinking this is an opportunity to free up a heap of cash and close out all but 2 of my open trades...and sit back and wait.


----------



## robusta

So_Cynical said:


> Rules, ya gota have em, everyone has to draw a line in the sand somewhere..trend followers follow rules, value investors follow rules and contrarian averagers follow rules.
> 
> Personally i allow for 3 average downs of mixed sizes...with a cash invested limit of X that is roughly 9% of my total portfolio value, of the 47 stocks i have held since June 2007 this strategy (to date) has worked in 42 of them...so a 88.6% success rate.




My rules depend on the individual business, something with nice stable dividend streams like TGA or NVT I would be happy to average down as much as I can, normally in increments as the price falls around 10% something a bit more cyclical like SWL I would probably only average down once with a smaller parcel. This rule was developed after my experience with MCE.





So_Cynical said:


> Good to see im not the only person having these feelings...this rally has brought the market back to the 2009/10 peak and yet nothing has changed that much, i have 5 positions (open trades) now in the sell zone (profit in double figures) and im thinking this is an opportunity to free up a heap of cash and close out all but 2 of my open trades...and sit back and wait.




Everyone seems happy that the US GDP is expected to grow around 2%, growth seems to vary by more than this over the economic cycle and that cycle seems to be speeding up.
 If the US, Japan, Europe and the UK were all businesses I would not touch them - too much debt.


----------



## robusta

While I strive not to make the same mistake twice I seem to have a uncanny ability to stumble into new mistakes while occasionally repeating some old ones.

*Investment Sold* 

VOC - Vocus Communications

Sold 838 @ $1.685 for net proceeds of $1372.12 after the broker got a little larger cut than usual. So that is a capital loss of $147.85 or a touch under 10% of the original capital speculated.

Mistake 1
Should never have bought this in the first place. The lure of high growth assets generating capital that is reinvested in more high growth assets blinded me to the fact that I did not understand the balance sheet and had no clear understanding of the cash flows. 

Mistake 2
Should have sold a couple of weeks ago as soon as I came to this realization.

Mistake 3
Got greedy. Started thinking maybe that growth is as fantastic as I think, we are in a bull market apparently, why not use a stop loss for the first time in my life, in particular a trailing stop. Sp at the time was $1.81, the trailing stop was set 4.5% below the recent high($1.725) where it was triggered today to be filled at $1.685


----------



## Klogg

robusta said:


> If the US, Japan, Europe and the UK were all businesses I would not touch them - too much debt.




Yeah, but they can never go broke - unless they do so voluntarily!


----------



## odds-on

So_Cynical said:


> I have given bottom buying a lot of thought over the years and have come to a few conclusions.
> 
> 
> Bottom buying is good, the greatest return on capital (both trade & div) can only be done with the cheapest entry.
> 
> Bottom buying can only be done on a down trend and only by accident, as no one knows where the bottom is.
> 
> Bottom buying can only be done deliberately, as in one seeking the bottom.
> 
> So its a deliberate act of chance, buying in the hope/belief that it is the bottom, or at least close enough that it doesn't really matter, works really well with an open ended time frame and little or no leverage...its worked out for me that over the last 5 years roughly 1 in 6 of my entry's has been a bottom.
> 
> So it would seem that if one consistently seeks bottoms it is bottoms that one will find.




I doubt many rational investors would disagree with the following:

•	The ASX300 market is broadly efficient. The majority of the time all businesses will trade within a “fair value range”.
•	The inefficiencies are in small cap stocks.
•	Profit margins are mean reverting – most listed businesses can be best described as fair. Only in exceptional cases are profit margins not mean reverting.
•	A business that has been successfully operating for a few years has the same probability of failure as a business with decades of operating history.

So creating a diverse portfolio of businesses with some operating history and a focus on buying bottoms allows the investor:

•	Profit from buying at the lower end of the fair value range of ASX300 listed stocks
•	Minimise risk (permanent loss of capital) by holding a diverse portfolio.
•	Recycle capital to maximise portfolio expectancy. Once a stock has gone up a reasonable amount, further gains are dependent on the mood of Mr Market or improved earnings, both of which are near impossible to predict with certainty, time is better spent searching for the next bottom.
•	Just follow the market and buy bottoms.

The open ended timeframe and no leverage make it work. I really do like your approach to the market. When I have a larger pot of capital and further experience I will look to implement a bottom buying system.


----------



## tech/a

Right now anyone with a brokerage account is making money.
The question is how much are they making relative to money invested.

Personally I think that before this year is out the folly of *BOTH* of your views will become aparent.


----------



## So_Cynical

odds-on said:


> I doubt many rational investors would disagree with the following:
> 
> •	The ASX300 market is broadly efficient. The majority of the time all businesses will trade within a “fair value range”.
> •	The inefficiencies are in small cap stocks.
> •	Profit margins are mean reverting – most listed businesses can be best described as fair. Only in exceptional cases are profit margins not mean reverting.
> •	A business that has been successfully operating for a few years has the same probability of failure as a business with decades of operating history.
> 
> So creating a diverse portfolio of businesses with some operating history and a focus on buying bottoms allows the investor:
> 
> •	Profit from buying at the lower end of the fair value range of ASX300 listed stocks
> •	Minimise risk (permanent loss of capital) by holding a diverse portfolio.
> •	Recycle capital to maximise portfolio expectancy. Once a stock has gone up a reasonable amount, further gains are dependent on the mood of Mr Market or improved earnings, both of which are near impossible to predict with certainty, time is better spent searching for the next bottom.
> •	Just follow the market and buy bottoms.
> 
> The open ended timeframe and no leverage make it work. I really do like your approach to the market. When I have a larger pot of capital and further experience I will look to implement a bottom buying system.




I whole heartily agree...however as TH pointed out in another thread, my (above) method may have near perfectly suited the conditions of the last 4 years, and thus may not work as well going forward.

However the results so far in my weekly system testing thread, seem to indicate that there are always stocks that look cheap (a potential bottom) even if they are harder to find in this rising market.



tech/a said:


> Right now anyone with a brokerage account is making money.
> The question is how much are they making relative to money invested.
> 
> Personally I think that before this year is out the folly of *BOTH* of your views will become aparent.




You may not have noticed but i have been doing a lot of selling over the last 2 weeks  14% of my portfolio now in cash.

I'm actually a little surprised at the depth of my contrarianism.


----------



## robusta

*Investment Increased*

HHL - Hunter Hall International Limited

Bought 717 @ $2.83 = $2049.06 including brokerage.

Actually expected the FUM to fall more at the H/Y report, the investment returns are improving however and while the dividend has been reduced I do not expect this to be a permanent state of affairs.

The share price has fallen further from the recent highs as they have gone ex dividend.


----------



## tech/a

robusta said:


> *Investment Increased*
> 
> HHL - Hunter Hall International Limited
> 
> Bought 717 @ $2.83 = $2049.06 including brokerage.
> 
> Actually expected the FUM to fall more at the H/Y report, the investment returns are improving however and while the dividend has been reduced I do not expect this to be a permanent state of affairs.
> 
> The share price has fallen further from the recent highs as they have gone ex dividend.




So you've watched a 30 % profit all to zero and now your buying more.
I just can't see this as smart/intelligent investing/trading.

You let profits go west and buy a falling knife.
I see self justification for adding to a bad trade.
In my opinion you must lock in profits.
You must minimize loss
Follow the money up---not down.
Take it off the table before it slips through your fingers.
Actively manage your portfolio.

Personal opinion obviously.


----------



## So_Cynical

tech/a said:


> So you've watched a 30 % profit all to zero and now your buying more.
> I just can't see this as smart/intelligent investing/trading.
> 
> You let profits go west and buy a falling knife.
> I see self justification for adding to a bad trade.
> In my opinion you must lock in profits.
> You must minimize loss
> Follow the money up---not down.
> Take it off the table before it slips through your fingers.
> Actively manage your portfolio.
> 
> Personal opinion obviously.




Your a trendy tech... don't know why you bother with these threads. :dunno: i mean you can stop yourself posting in the political and real estate thread/s. 

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

Trade wise the HHL SP is lagging the other fund managers, reason to believe that at some point HHL will catch up...all things being equal.


----------



## brty

I had to go back a way to find the original thoughts behind HHL.



> I am confident the returns will improve




This is very similar to the thoughts on VOC...



> I think this sector is set to boom




To me these are not rational concepts to have in a trading strategy that uses "fundamental leveraged" positions.

In the HHL half yearly report, we get the following in the 'outlook' part...



> Outflows are likely to continue for some time to come





> If total funds under management remain at current levels, ongoing cash profit from Investment Management for the 6 months to June 2013 should roughly match the $4m posted in the December 2012 half year




One of these quotes is what management believes, the other a 'what if' scenario. The market has acted accordingly.

This whole paragraph should set off alarm bells for every investor in the company, from the chairman and chief investment officer...



> As a result of better investment performance the rate of fund outflows started to slow from about
> September 2012. Outflows are likely to continue for some time to come but we have been able to maintain our funds level at around $1.2 billion for nearly six months. Funds outflows are a lagging
> indicator and we hope the operational changes we are making will continue our run of good
> performance and eventually allow a return to net inflows.




Rate of outflow slowed from September,and they are likely to continue, is totally inconsistent with "we have been able to maintain our funds for 6 months. Which is it?? 
If you derive your income from a percentage of FUM, then fund outflows are clearly a leading indicator, not a lagging indicator.
Then the proverbial "we hope", added to "will continue our run of good performance". A 35% decline in ongoing cash profit from the prior corresponding period and a 22% decline in revenue from investment management is regarded as a good performance by the chair. 

Robusta, What is your stoploss strategy here?


----------



## brty

Robusta,



> You could be right about SHV, I will have to take a closer look.




Did you take a closer look? What were your conclusions?


----------



## tech/a

So_Cynical said:


> Your a trendy tech... don't know why you bother with these threads. :dunno: i mean you can stop yourself posting in the political and real estate thread/s.
> 
> ------------------------------
> 
> Trade wise the HHL SP is lagging the other fund managers, reason to believe that at some point HHL will catch up...all things being equal.




Would you be so kind as to show me how you can profit without a movement in the direction of your trade.
Perhaps you could also explain how HHL dropped 30% of it's value recently without " trending" lower.

Every single trader who wants to profit from appreciation of their investment will be looking for a trend.
Long or short.
Value investor
Mean reversion
System
Discretionary
Blah blah.

The whole idea of Robusta's exercise is to profit. Without trends to the upside he won't profit.
Looking forward to you lesson So Cynical.


----------



## Ves

brty said:


> In the HHL half yearly report, we get the following in the 'outlook' part...
> 
> 
> 
> 
> One of these quotes is what management believes, the other a 'what if' scenario. The market has acted accordingly.
> 
> This whole paragraph should set off alarm bells for every investor in the company, from the chairman and chief investment officer...
> 
> 
> 
> Rate of outflow slowed from September,and they are likely to continue, is totally inconsistent with "we have been able to maintain our funds for 6 months. Which is it??
> If you derive your income from a percentage of FUM, then fund outflows are clearly a leading indicator, not a lagging indicator.
> Then the proverbial "we hope", added to "will continue our run of good performance". A 35% decline in ongoing cash profit from the prior corresponding period and a 22% decline in revenue from investment management is regarded as a good performance by the chair.



Brty, fund outflows were offset by appreciation in the market value of fund investment assets.   Therefore FUM remains the same as quoted by management.   That's the tricky thing about these businesses - at the top and bottom of the market cycle fund in or outflows can be playing tug of war with the increase or decline of investment assets.   

There is an arguable investment thesis for HHL at the moment - it's mostly macroeconomic, but backed up by the powerful operating leverage that is latently sitting in this business at or near the bottom of the cycle.  If you're interested read through the last few annual reports, AGM addresses, presos and model some of your own assumptions.  Mind you, it won't be everyone's style.  I still hold some of my previous reservations.

Disclosure: not holding.


----------



## kermit345

Tech/a isn't everyone here familiar with how SC goes about his investing by now?

"Looking forward to you lesson So Cynical." - It's like your baiting him in for another flame war over his style

I haven't followed HHL at all but it looks like brty's post has summed up pretty well whats going on, although as Ves pointed out their FUM is treading water at the moment thanks to market returns offsetting the outflows. If outflows continue but the market appreciation takes a breather or corrects a little bit then FUM will drop.

Probably the best FM opportunity's in the last year or two has been PTM or Magellan. Both are high quality fund managers with long track records (PTM) who were at lows thanks to recent performance. It was highly probable that they'd eventually turn it around when the market went for a run and look whats happened.

What worries me about HHL is that they are still having outflows after we've gone up in a straight like for 5 months now and the fact they are signalling it wont stop soon makes me think a dealer group may have taken the fund off of their approved product list and this is fueling the consistent outflows. I know recently in the dealer group I work for we've been constantly reducing the size of our approved product list which means some fund managers lose out on reasonable FUM if the dealer group is big enough.

Will be interesting to see how you go robusta, i'd just be concerned that there are still net outflows after 5 months of market appreciation - I don't think it lags quite that much (I'd guess maybe 1-2 or 3 months TOPS for the lag effect of inflows to start coming in once people see the market shooting up)


----------



## McLovin

kermit345 said:


> What worries me about HHL is that they are still having outflows after we've gone up in a straight like for 5 months now and the fact they are signalling it wont stop soon makes me think a dealer group may have taken the fund off of their approved product list and this is fueling the consistent outflows. I know recently in the dealer group I work for we've been constantly reducing the size of our approved product list which means some fund managers lose out on reasonable FUM if the dealer group is big enough.




This is a very good point, frog. I hadn't considered that they might have lost a dealer group.

PPT, AMP have all had large increases over 1H13 (more due to the market rising than applications. although that probably started to change in the 3Q, IMO) but HHL is still going backwards. If you blend the performance of their funds it comes out at almost dead on the market increase over the 6 months (~14.3% v XAO 14.4%), but even with that sort of increase they still had a 5% decline in FuM. That requires a pretty hefty redemption rate, which the loss of a dealer group would certainly explain.


----------



## tech/a

> "Looking forward to you lesson So Cynical." - It's like your baiting him in for another flame war over his style




No I'm actually looking forward to how you can profit without a trend.
Will be something I and everyone here will learn.

If he or anyone else wishes to label my "type" of trading as something different to his or anyone else.
I beg to differ.
Label it what you want
Mean reversion/Value/Fundamental/Technical/Systematic----we all trade/invest trends.
But if you can profit without one I sure as hell am all ears---aren't *YOU?*


----------



## kermit345

tech/a said:


> No I'm actually looking forward to how you can profit without a trend.
> Will be something I and everyone here will learn.
> 
> If he or anyone else wishes to label my "type" of trading as something different to his or anyone else.
> I beg to differ.
> Label it what you want
> Mean reversion/Value/Fundamental/Technical/Systematic----we all trade/invest trends.
> But if you can profit without one I sure as hell am all ears---aren't *YOU?*




Yeh sure i'd be interested, but I don't see how SC has stated anywhere that this is the case. All he said is that HHL is lagging other fund managers and that at some stage it should catch up, and that catch up period would be the trend and the profitable period.

Anyway i'm done replying to you Tech/a, it just seems like your always trying to get under the skin of others, or even if your not trying you certainly achieve it. 

McLovin: about to go on a conference call but will reply shortly with some added thoughts.


----------



## prawn_86

Let's try and keep on topic please folks, being 'Robusta fundamental, leveraged investments'

Thanks


----------



## galumay

tech/a said:


> No I'm actually looking forward to how you can profit without a trend.
> Will be something I and everyone here will learn.
> 
> If he or anyone else wishes to label my "type" of trading as something different to his or anyone else.
> I beg to differ.
> Label it what you want
> Mean reversion/Value/Fundamental/Technical/Systematic----we all trade/invest trends.
> But if you can profit without one I sure as hell am all ears---aren't *YOU?*





Perhaps there would be less confusion if your type of investment is decribed as technical versus those that follow a fundamental approach?


----------



## tech/a

> Your a trendy tech... don't know why you bother with these threads.  i mean you can stop yourself posting in the political and real estate thread/s




What the?



> Anyway i'm done replying to you Tech/a, it just seems like your always trying to get under the skin of others, or even if your not trying you certainly achieve it.




Who's getting under who's skin?

Is Robusta and Fundamental trading/investing above critique?
Is the whole idea not to offer food for thought?
After watching 30% slip buy most would be at least questioning?

A simple stop could have seen at least 20-30% gleaned even if he decided to buy back at these levels
with an extra 20-30% in his pocket.

This technical V Fundamental argument touted by the Fundamentalists is just plain rubbish.
Im speaking of Portfolio and Stock Management something I see needing some attention.
Im suggesting robusta's ideas could be improved.

If putting up food for thought or suggestion for improvements from me are an issue use *IGNORE*


----------



## prawn_86

tech/a said:


> A simple stop could have seen at least 20-30% gleaned even if he decided to buy back at these levels
> with an extra 20-30% in his pocket.




This is a good idea that can be applied across a lot of portfolios. I would be interested in seeing the reasoning as to why it is not used in this situation, especially as this is a leveraged portfolio.


----------



## CanOz

You do have to wonder a little that in a raging bull market if the capital could have been better deployed elsewhere....

Robusta put this thread up knowing that he would receive criticism. I don't think anything anyone has said is offensive and i think many are wondering why you would add to a losing position when so many opportunities for equities showing strength on momentum were available. At least i am...



CanOz


----------



## kermit345

tech/a, its not what you say its how you go about saying it which people have highlighted before, anyway back on topic.

McLovin: With the administration burden thats expected by the new FOFA legislation its expected that dealer groups will be going through quite a lot of mergers etc (my dealer group already has). This in turn means that approved product lists (APL) originally are quite large as the two companies joining have different lists, however management also wish to reduce their research and administration burden and so therefore reduce the approved product list down to a small amount of products.

This has the effect of fund managers being listed on lower and lower amount of dealer groups APL's unless a dealer group is happy with them and want to retain them. The whole industry is going through quite a bit of change, I do think HHL will come out the otherside fine but a lot of boutique's might find it tough moving forward.

It's just the way that HHL say they expect the outflows to continue for a little longer that makes me think, just maybe, they are aware that a dealer group is selling out of them as they are no longer on an APL, beacuse after a 5 month appreciating straight line market I don't think you'd be expecting further outflows to continue in the coming months.

As tech/a is I think elluding to, is that when you see the net outflows trend reverse and become net inflows that may be the opportune time to buy in to HHL. Also agree with tech/a that HHL's share price dropping while the market is going up would've had some little alarm bells ringing for me that it may have been a good idea to take profit and come back another day but each to their own. Your strategy is to buy and hold long term and the purpose of this thread is to see how that goes so maybe it will work out this time around or maybe robusta will look back and see this as a learning experience, time will tell.


----------



## craft

I have seen Robusta describe HHL as a long term core holding.

To date I have seen two data points( the purchase and 1 dividend)  of what will possibly be hundreds of data points in his eventual investment return calculation.  

The concept of cash flow from a business justifying an investment seems to be incomprehensible to most – perhaps it’s a time thing. 

The future cash flows and the reasonableness of the buy price in relation to those flows are debatable - but the long term winner of that debate will be in the minority short term – It’s the only way you get the right price.

I see SHV has been put forward as a more sensible business for a “fundamental leveraged” hold.

That’s not what I see when I look at the economics of the two businesses.

SHV over 18 years has distributed via dividends 116 Million to shareholders and required 84 Million back to fund the net increase in the capital account.  So a net 32Million free distribution over 18 years on current capital contributed of 96 Million. Current debt stands at 66 Million plus whatever they have added for recent acquisitions.  Operational and Financial leverage in spades in this company  to juice the short term result when things line up  but little in the way of attractive long term business economics. 

HHL over 12 years has distributed via dividends 105 Million to shareholders and required 12 Million back to fund the net increase in the capital account. So a net 93 Million free distribution over 12 years on current capital contributed of 17 Million. Current debt stands at ZERO. Yes HHL has operation leverage that will cause volatility but there is no financial leverage to kill them in a down cycle such as they are experiencing now and a lot to like from a business economics perspective.

By its very definition the “road less travelled” will never be crowded – It also seems destined to be endlessly mocked by those who don’t choose/understand it.


----------



## Ves

Thanks craft - possibly saved me a post in more ways than one.

FMs are notoriously hard to value as they rely on a lot of different factors (both client inflow / outflow, investment strategy and portfolio management expertise, and general macroencomic tailwinds and headwinds).

You need to understand how the business model works, where the cash flows in and out, how much they need to maintain or expand their business and how the ups and downs of the cycle will affect your investment, before you can be confident in a perspective purchase - just like any other business. 

The safest place to buy them (in the absence of any erosion in the quality of their business) is at the bottom of the investment cycle. Others need to decide whether they think this is now, much later or if the market will never rise again like it once did (eternal purgatory) and act accordingly on this decision.

Short-term market movements and investment thesis are often at odds - hence why using a stop-loss won't help, mostly it will just expose you to the inherent whipsaw nature of the market.


----------



## sinner

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.


----------



## sinner

I also note that with an avg portfolio turnover of 4 years for value style portfolios, it's possible that majority of returns come from dividends, assuming you buy low beta stocks there is a high probability that "capital gains" will be low in terms of %, so a trend is not necessarily required as the main factor in return generation.


----------



## CanOz

That's great Sinner, if you can stomach the draw-downs...

I posted this before but was diverted to another site...weird...

CanOz


----------



## sinner

CanOz said:


> That's great Sinner, if you can stomach the draw-downs...
> 
> I posted this before but was diverted to another site...weird...
> 
> CanOz




I f'n give up.:frown:


----------



## CanOz

sinner said:


> I f'n give up.:frown:




Good, F'in give up then!

What the bloody hell did i say that made you react like that?


----------



## robusta

tech/a said:


> So you've watched a 30 % profit all to zero and now your buying more.
> I just can't see this as smart/intelligent investing/trading.




Yeah you a probably right I should have had more capital available in the first place so as to take a largeer position in the first place. As for a 30% fluctuation in the price? That should be a minor blip on the ten year chart.



brty said:


> Rate of outflow slowed from September,and they are likely to continue, is totally inconsistent with "we have been able to maintain our funds for 6 months. Which is it??
> If you derive your income from a percentage of FUM, then fund outflows are clearly a leading indicator, not a lagging indicator.
> Then the proverbial "we hope", added to "will continue our run of good performance". A 35% decline in ongoing cash profit from the prior corresponding period and a 22% decline in revenue from investment management is regarded as a good performance by the chair.




This from the CEO at the AGM in November

"3. Investor behaviour is strongly influenced by recent (ie. five year) 
investment performance. Investors are bullish after markets have risen 
and are bearish after markets have fallen
I would like to expand on this third point to demonstrate the strong relationship 
between recent investment performance and investor behaviour. [Flows and 
Performance]The chart on the screen shows the strong correlation between 
the five year investment performance of the Value Growth Trust and net flows 
into it. This data has been sourced from the 15+ year history of the VGT through 
all sorts of market conditions. As shown on the chart, if the five year investment 
performance of the VGT exceeds the cash rate (ie. about 5%) there are positive 
net flows into the fund. If five year returns fall below the cash rate, net fund 
flows turn negative. The current five year performance numbers are the worst 
on record for the VGT and, not surprisingly, the net outflows are at their highest 
levels. The good news is that our five year performance has bottomed and will 
continue to improve throughout the remainder of the 2013 financial year.
This brings me to summarise the current state of the equities funds management 
industry. The bottom line is that our industry is in recession. Why? [Industry 
Segment]:1. The five year returns of cash far exceed the five year returns of equities.
For example, the MSCI has delivered returns of (5.0)% per annum and the 
All Ordinaries has delivered returns of (3.6)% per annum for the five 
years to 31 October 2012.
2. Therefore, most of the money at the moment is going into assets with 
lower perceived risk such as cash.
3. There are net outflows from assets with higher perceived risk such as 
Australian and international equities. In recent years, hundreds of 
billions of dollars globally have poured out of growth assets into cash and 
other defensive assets
4. Net inflows will not return to equities until the five year performance 
numbers of that asset class exceeds the cash rate
To compound these problems, most equities fund managers are also under 
pressure from their clients for having fees that are too high.
In other words, right now is possibly the worst time to be running an equitiesbased funds management company. Hunter Hall is no exception to this: FUM has 
declined with negative investment performance, fund outflows have accelerated 
because our five year investment performance is poor relative to cash, and 
profits are declining.
Despite this, I am looking forward to the opportunity to manage Hunter Hall in 
the next phase of its history. I see it as a glass half full not a glass half empty.
My optimism for Hunter Hall is based on the following factors:
1. Stock markets will eventually start outperforming cash
2. Our five year investment performance numbers are highly likely to 
improve from their current low ebb. 
3. As a result, investor behaviour will shift back towards equities and 
Hunter Hall: slowly at first but more quickly over time
4. Hunter Hall has an excellent track record at picking stocks"

Sorry I could not post the charts for this presentation plus I seem to have forgotten how to quote from a outside source on ASF.




brty said:


> Robusta, What is your stoploss strategy here?




No stop loss, I have only used one once in my life.



Ves said:


> Brty, fund outflows were offset by appreciation in the market value of fund investment assets.   Therefore FUM remains the same as quoted by management.   That's the tricky thing about these businesses - at the top and bottom of the market cycle fund in or outflows can be playing tug of war with the increase or decline of investment assets.
> 
> There is an arguable investment thesis for HHL at the moment - it's mostly macroeconomic, but backed up by the powerful operating leverage that is latently sitting in this business at or near the bottom of the cycle.  If you're interested read through the last few annual reports, AGM addresses, presos and model some of your own assumptions.  Mind you, it won't be everyone's style.  I still hold some of my previous reservations.
> 
> Disclosure: not holding.




The fixed cost nature of this business gives me plenty of confidence in the event of a eventual lift in revenue. I just have no idea when that operating leverage will manifest itself.


----------



## robusta

McLovin said:


> This is a very good point, frog. I hadn't considered that they might have lost a dealer group.
> 
> PPT, AMP have all had large increases over 1H13 (more due to the market rising than applications. although that probably started to change in the 3Q, IMO) but HHL is still going backwards. If you blend the performance of their funds it comes out at almost dead on the market increase over the 6 months (~14.3% v XAO 14.4%), but even with that sort of increase they still had a 5% decline in FuM. That requires a pretty hefty redemption rate, which the loss of a dealer group would certainly explain.




Not so sure HHL have used any large dealer groups in the past however the new CEO seems to be trying to change this.


----------



## robusta

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




Sinner you posted a article and discussion of low beta stocks on this thread a while ago.

https://www.aussiestockforums.com/forums/showthread.php?t=26228&page=2

I find this subject interesting and I would like to investigate it further. With your permission I would like to post it on the long term investing thread to make it easier to find in the future. This thread tends to ramble a bit, not that I mind that.


----------



## So_Cynical

tech/a said:


> Would you be so kind as to show me how you can profit without a movement in the direction of your trade.




Silly question really...im a long only punter so obviously i only want my stocks to go up....your point is?



tech/a said:


> Perhaps you could also explain how HHL dropped 30% of it's value recently without " trending" lower.




Who said HHL wasn't trending lower?? 2 year chart shows a clear down trend, 6 month chart a clear sideways trend...again your point is?



tech/a said:


> Every single trader who wants to profit from appreciation of their investment will be looking for a trend.
> Long or short.
> Value investor
> Mean reversion
> System
> Discretionary
> Blah blah.
> 
> The whole idea of Robusta's exercise is to profit. Without trends to the upside he won't profit.
> Looking forward to you lesson So Cynical.




In all honesty im not looking for a trend, sure i want my stocks to go up and for that to happen an up trend will be needed, but i could care less about an up trend....just a play on words i suppose, i look for potential and a low entry or at least a statistically reasonable entry point...i let time take care of the rest.

The rally has been great for me, i call it a rally because that's what markets do, of course they trend up and down too....you call it what ever you want.

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



kermit345 said:


> Probably the best FM opportunity's in the last year or two has been PTM or Magellan. Both are high quality fund managers with long track records (PTM) who were at lows thanks to recent performance. It was highly probable that they'd eventually turn it around when the market went for a run and look whats happened.




After i took a profit from PTM recently i looked back and compared their FUM turn around to their SP rally, from memory FUM lead the SP rally by 6 weeks or so....as FUM continued up so did the SP... Its not a big stretch of the imagination to see HHL doing similar at some point. 

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



prawn_86 said:


> Let's try and keep on topic please folks, being 'Robusta fundamental, leveraged investments'
> 
> Thanks




Just noticed this...good idea.


----------



## brty

There are several reasons why I differ from some of the views given, re the fundamentals of HHL. Looking at some facts.

The chair noted the good performance of Sirtex to December in the half year report. HHL held over 13m shares valued at a total of ~$172m or ~15% of total FUM. The chair also noted that the various funds had increased in value from 2.1-9.4% from the end of December to the time of reporting (20th Feb). The all ords had risen 9.5% in that time.

The company appears to me to have its hopes based primarily on one stock and its performance, which was negative from December to Feb, during one of the largest bull runs in years for the general market. Hence the funds have underperformed in that time. It reminds me of other fund managers in the past that rely on one stock for their performance, it never seems to end well.  
As an individual, I would not let one company become 15% of my total investment holdings, I cannot fathom how an investment management company doesn't have risk management procedures in place to prevent this from happening. 
Making poor decisions like this, coupled with the loss of FUM, seems to be interpreted by the shareholders as negative, hence the ~17% fall from Feb 20 price of $3.53 to todays $2.93.  

Craft,
A quick comparison between HHL and SHV on the 20 feb, with knowns and unknowns...
Market CAP HHL ~$93m SHV ~$101m 
Cashflow from operating activities HHL $4.4m and SHV $11.6m
HHL hopes revenue will remain steady (despite acknowledged fund outflows; a market correction will decimate this number)
SHV, no forecast, yet a ~70% increase in crop yield and a ~25% increase in world almond price indicates a much higher cashflow. My guess, with inventories of $52m, is cashflow in the $17-20m range for the second half. 
HHL no debt, net assets ~$18.9m mostly cash
SHL  debt-cash ~$61m, net assets ~$139m mostly almond orchards.

Given the above, the price of the debt is about a $20m difference in cashflow. With the reduction of the dividend for SHV and even last years (full year) cashflow of $22m repeated, further asset sales already announced, then the $61m debt will be quickly diminished.

Having stated all that, I sold my position today errr yesterday, as the current upmove is probably overdone, 40% since 20 Feb. I intend to re-enter SHV on both value and potential grounds, given the correct technical signals, I will not be entering HHL for precisely the same reasons.


----------



## craft

BRTY

I don’t disagree that SHV is/was a good short term proposition. A good season works wonder on the levers in the business.

Long Term leveraged fundamental – which is Robusta’s stated strategy, I would buy HHL during a tough time in a flash over SHV during a bumper year for such an approach.  The business economics matter over the long term, not what forces may be at play in the short term.

Perhaps you are questioning whether his strategy is right – that’s another debate, but as far as I see his HHL selection fits his stated strategy.

Now to nuts – I like nuts (or am I nuts)

I differ with your analysis on SHV’s debt. 

From the operating costs you need to subtract SIB capex and tree development to get free cash. Averaged over good and bad years SHV carries too much debt for my liking and they still need to buy more crop to get the fixed cost of installed processing down.  All in the face of OLAM having a far better competitive position.

WBA are into Walnuts and have a much stronger competitive advantage and a far better balance sheet.  – You may want to compare the two companies if you are after a longer term agriculture exposure.  However SHV would be the better trading stock: volatility: liquidity.


----------



## brty

Craft,



> I differ with your analysis on SHV’s debt.




We obviously have different opinions on this. I also prefer lower debt, which I believe the good season will help resolve. The tree development costs have mostly concluded according to the half year report, further property purchases have been for mature orchards which will add immediately to the bottom line.
If all of the problems were totally solved, then I would expect the stock price to reflect this, hence the early opportunity, IMNSHO value.

I think it appropriate for any further discussion on SHV to occur in that thread as Robusta has not entered it into his portfolio. My apologies for hijacking the thread.

On Robusta's premise of long term value, I note a level of trading in and out of different stocks so I decided to have a look at overall performance so far.
In the last full update to 17 December we get this....



> Current Portfolio Market Value 17 December 2012
> 
> 65 x COH @$76.96 =$2002.20 +66.74%
> 4001 x DTL @$1.25 =$5001.25 +26.3%
> 1412 x EZL @ $.99 = $1397.88 -7.4%
> 1182 x HHL @ $2.59 =$3061.38 -9.66%
> 1660 x IPP @ $0.83 = $1377.8 -10.47%
> 1393 x MTU @ $4.18 = $5822.74 +58.2%
> 1023 x NVT @ $4.60 = $4705.8 +55.96
> 1373 x OKN @$1.20 = $1647.6 -18.34%
> 2528 x SWL @$0.79 =$1997.12 -28.23%
> 2913 x TGA @ $2.04 =$5942.52 +31.07%
> 
> This brings paper profit considering the open positions to $2830.38




compared to an earlier portfolio holding of this....



> Current Portfolio Position August 2011
> 
> 
> 1373 x CCP @ $3.90 = $5354.70
> 676 x FGE @ $4.47 = $3021.72
> 932 x MCE @ $5.16 = $4809.12
> 1115 x MTU @ $2.55 = $2843.25
> 29524 x SOO @ $0.086 = $2539.06
> 7142 x TSM @ $.545 = 3892.39




It begs the question of "Is this strategy working?" As a comparison I looked at dumping the entire $30k starting LOC into a LIC, say AFI..
AFI price 17 Dec $4.95, price on the 25th July 2011 $4.45.
Of the starting LOC $29,322 was available. Allowing for brokerage then 6575 shares could have been purchased with a few dollars of change left over.
Dec 17 value of AFI  $32,456 plus dividends totalling 34c, 100% franked so  $3,193. Total $35,649, a gain of $5,649. Take away the $3,300 payment for the LOC = $2,349

So, yes the portfolio has exceeded AFI returns by ~$500 to December. Currently AFI is $5.41 and has paid another 8c div ff, so currently an AFI portfolio value would be $35,570 plus $3,945 divs and franking credits, total $39,515, a 10.8% increase since December.

Up to the December 17 date, a strategy of just saving the $50pw, instead of having a LOC, and buying AFI upon each mutiple of $1000 would have been more profitable, but less educational.

A look at the current portfolio would be interesting.

Robusta, I do apologize if I come across as too harsh or ask too many hard questions. This thread is very educational and a good read of all the differing opinions.


----------



## skc

brty said:


> It begs the question of "Is this strategy working?" As a comparison I looked at dumping the entire $30k starting LOC into a LIC, say AFI..




IMO the benchmark to anyone starting to trade / invest should simply be against a do nothing scenario.

As time goes by and he/she becomes more competent, then we can start aiming to generate alpha and benchmark against a LIC or XJOAI.


----------



## brty

Skc,



> As time goes by and he/she becomes more competent, then we can start




The original timeframe presented was 5 years. 5 years is a long time to waste if that is what happens. My opinion is that it is far better to constantly compare "what ifs", including doing some paper trading on slightly different methods at the same time.

Hoping to become more competent by doing more of the same, will only work if there is a rational reason to continue what you are doing. The only way to find out if there is a rational basis is to compare with alternatives. I do not consider 'doing nothing' as a reasonable alternative. 

I just had a quick look at the original portfolio (August 2011) and it's value as of December 2012 was some $800 higher (no allowance for divs), so changing the portfolio appears to be positive to that point.


----------



## robusta

Sorry I have not been active on this forum for a while life has been busy...

*PORTFOLIO UPDATE*

Since the last update on January the first I have closed the position in OKN, opened and closed a position in VOC and increased the HHL investment.

The capital loss from these two closed positions of $338.79 means the capital gain this financial year falls to $495.27  subtracting this from the previous years loss $3095.16 gives a grand negative total of $2599.89

So far paid the bank $1371.51 in interest and charges  when this is added to last years total of $2303.28 this brings the total I have paid to $3674.79

Probably about half way through the dividends for this interim period with DTL, HHL, SWL and MTU still to come so, $1161.75 in dividends plus $451.42 franking credits when we add to last years dividends $960.33 and franking credits $383.34

The total is $2122.08 in dividends plus $834.76 franking credits.

So that is *loss of $4152.60*

Better have a look at where the open positions are (including brokerage)

Open Positions
Bought:
1115    x MTU    @   $2.62      =    $2941.25        08/08/11
65       x COH     @   $45.85    =    $3000.20        30/09/11                                                                                                                                   
1023 x NVT        @ $2.93        =    $3017.34        02/02/12           
972 x TGA          @ $1.505          =$1482.81        05/04/12
1074 x TGA         @$1.395          =$1518.18        26/04/12
1912 x DTL         @1.045            =$2017.99        18/05/12
278  x MTU         @$2.66           =$739.48           21/05/12 (rights issue)
2089 x DTL         @$0.92           =$1941.83         18/06/12
1685 x SWL        @$1.18           =$2008.25          19/06/12
1412x EZL          @ $1.055        = $1509.61         17/07/12
843 x SWL          @ $0.895        = $774.44           26/07/12
1660 xIPP           @ $0.915        = $1538.85         14/11/12
867 x TGA          @ $1.745        = $1532.87          20/11/12
1182 xHHL          @ $2.85          = $3388.65         23/11/12
717  xHHL           @ $2.83          = $2049.06         11/03/13
Subtotal      $ 29,460.81

Current Portfolio Market Value

65        x COH       @$67.87  =$4411.55                                        +47.04%
4001    x  DTL       @$1.22    =$4881.22                                        +23.27%
1412     x EZL        @ $1.25  = $1779.12                                       +17.85%
1899    x HHL        @ $2.80  =$5317.2                                           -2.22%
1660  x IPP           @ $0.94 = $1560.40                                         +1.4%
1393    x MTU       @ $5.00  = $6965.00                                        +89.23%
1023 x NVT          @ $5.20  = $5319.60                                         +76.3%
2528  x SWL         @$1.25  =$3185.28                                          +14.47%
2913  x TGA         @ $2.08 =$6059.04                                          +33.64%

Subtotal = $39,478.41


This brings paper profit considering the open positions to  *$5865.00*

Portfolio market value $39,478.41 minus line of credit drawn of $29,663.76 equals $9814.65 equity.

The $50/week I am throwing at the line of credit now totals $4000.00

So the return on my contributions is around +145%.

Credit available $336.24


----------



## robusta

brty said:


> On Robusta's premise of long term value, I note a level of trading in and out of different stocks so I decided to have a look at overall performance so far.




This level of trading is a bit of a embarrassment to me, in a ideal world with a better me in it I would be patient and make better decisions without second guessing myself.



brty said:


> In the last full update to 17 December we get this....
> 
> compared to an earlier portfolio holding of this....
> 
> It begs the question of "Is this strategy working?" As a comparison I looked at dumping the entire $30k starting LOC into a LIC, say AFI..
> AFI price 17 Dec $4.95, price on the 25th July 2011 $4.45.
> Of the starting LOC $29,322 was available. Allowing for brokerage then 6575 shares could have been purchased with a few dollars of change left over.
> Dec 17 value of AFI  $32,456 plus dividends totalling 34c, 100% franked so  $3,193. Total $35,649, a gain of $5,649. Take away the $3,300 payment for the LOC = $2,349
> 
> So, yes the portfolio has exceeded AFI returns by ~$500 to December. Currently AFI is $5.41 and has paid another 8c div ff, so currently an AFI portfolio value would be $35,570 plus $3,945 divs and franking credits, total $39,515, a 10.8% increase since December.
> 
> Up to the December 17 date, a strategy of just saving the $50pw, instead of having a LOC, and buying AFI upon each mutiple of $1000 would have been more profitable, but less educational.




Interesting comparison with AFI brty they certainly have been a good performer. The bottom line with my portfolio is the losses are all realised but the profits are all open. This makes a comparison with other portfolios difficult in my opinion at this early stage. The trouble with a lot of the open positions is the price to an extent is irrelevant to me. This makes short term fluctuations in price meaningless. The dividends exceeding the interest paid next year is something I am looking forward however. 
Sooner or later maybe some capital gains will also come.



brty said:


> Robusta, I do apologize if I come across as too harsh or ask too many hard questions. This thread is very educational and a good read of all the differing opinions.




Not at all brty I appreciate your input.


----------



## Huskar

skc said:


> IMO the benchmark to anyone starting to trade / invest should simply be against a do nothing scenario.
> 
> As time goes by and he/she becomes more competent, then we can start aiming to generate alpha and benchmark against a LIC or XJOAI.




Robusta can I suggest treating yourself as if you were a fund manager and calculating time weighted internal rate of return (TWIRR) - a mouthful but is relatively simple to set up and very simple to keep up to date. That way you can immediately compare your return vs the index or cash or do nothing or whatever.

"If you don't measure yourself you are kidding yourself."

There is a very good (old) Motley Fool article here http://www.fool.co.uk/stockideas/2005/si050720.htm.

In short, all you need to know is how much money has gone into the account, how much has gone out and the value of the account on a given day (end of day, end of week, month, or whatever).

Then just begin at the beginning (as the King of Hearts says) with the allocation of $ at risk to a certain number of units. For example $10k and 10,000 units. Your base net asset value is $1.

Then whenever you put in or take out money of the account you purchase/sell the equivalent number of units at yesterday's closing NAV.

Your NAV is the fluctuating value of shares/cash/investment products.

Regarding your interest payments, you might treat that as a drawing or perhaps just forgettaboutit and it will be reflected in the decrease in NAV.

Happy days

ps Gav might have already done the work and a spreadsheet for you here https://www.aussiestockforums.com/forums/showthread.php?t=14478&page=4&p=672914#post672914 

Post #144.


----------



## robusta

Huskar said:


> Robusta can I suggest treating yourself as if you were a fund manager and calculating time weighted internal rate of return (TWIRR) - a mouthful but is relatively simple to set up and very simple to keep up to date. That way you can immediately compare your return vs the index or cash or do nothing or whatever.
> 
> "If you don't measure yourself you are kidding yourself."
> 
> There is a very good (old) Motley Fool article here http://www.fool.co.uk/stockideas/2005/si050720.htm.




That was a interesting read Huskar. In a roundabout way I think the results I am getting are close to this. The cash contributed is probably a little skewed however. For about the first six months $40.00 per week, then after that $50.00 per week has been deposited without fail. The return has been calculated as a percentage of this cash. There has been no cash withdrawn.



Huskar said:


> In short, all you need to know is how much money has gone into the account, how much has gone out and the value of the account on a given day (end of day, end of week, month, or whatever).
> 
> Then just begin at the beginning (as the King of Hearts says) with the allocation of $ at risk to a certain number of units. For example $10k and 10,000 units. Your base net asset value is $1.
> 
> Then whenever you put in or take out money of the account you purchase/sell the equivalent number of units at yesterday's closing NAV.
> 
> Your NAV is the fluctuating value of shares/cash/investment products.
> 
> Regarding your interest payments, you might treat that as a drawing or perhaps just forgettaboutit and it will be reflected in the decrease in NAV.
> 
> Happy days
> 
> ps Gav might have already done the work and a spreadsheet for you here https://www.aussiestockforums.com/forums/showthread.php?t=14478&page=4&p=672914#post672914
> 
> Post #144.




The interest payments are treated as a reduction of the NAV at the moment this shows up on both sides of the equation;

Market value of portfolio - portfolio cost + capital gains - capital losses - interest paid + dividends received. The figure derived from this gives the gain or loss on the capital contributed.

This number should equal this.



robusta said:


> Portfolio market value $39,478.41 minus line of credit drawn of $29,663.76 equals $9814.65 equity.
> 
> The $50/week I am throwing at the line of credit now totals $4000.00
> 
> So the return on my contributions is around +145%.
> 
> Credit available $336.24


----------



## robusta

brty said:


> It begs the question of "Is this strategy working?" As a comparison I looked at dumping the entire $30k starting LOC into a LIC, say AFI..




The reason I shy away from comparisons like this is there are a couple of ways of looking at my portfolio.
Looking at the results from the closed positions I have thrown in $4000.00 and have this result so far to declare to the taxman.



robusta said:


> So that is *loss of $4152.60*



This by any measure is a diabolical result. 

Looking at the NAV from the open positions things look a little brighter at the moment.



robusta said:


> This brings paper profit considering the open positions to  *$5865.00*




At the end of the day the number I tell the tax man will be the only one that will count.


----------



## Booboo2

Robusta thanks for a great, honest read!
Hesking thanks for the tip...just spent afew hours figuring it out and although it is quite non intuitive at first, it is a great pointer for me.


----------



## robusta

Twelve months ago today I picked up my first parcel of Thorn Group



robusta said:


> 972 x TGA          @ $1.505          =$1482.81        05/04/12




A few weeks later the price kept on falling so I averaged down.



robusta said:


> 1074 x TGA         @$1.395          =$1518.18        26/04/12




In a first for me as a investor I averaged up on a dip in the share price about seven months later.



robusta said:


> 867 x TGA          @ $1.745        = $1532.87          20/11/12




So that ends up being a holding of 2913 shares at a cost of $4530.86 or a average price of around $1.556/share.

The most recent parcel has only received the interim dividend but but for the purposes of this post I will look at the yield on the total investment, $243.62 dividends received gives a yield of 5.38% plus $104.41 in franking credits. This should cover the interest I have to pay on the line of credit.

If you take today's closing price of $2.04 the market is valuing my $4530.86 investment at $5942.52 or a gain of about 31%. This business I consider a core holding and would have to be offered a very high price by the market to induce me to sell. Long may they grow profits and increase the dividend.

For those with a technical bent here is a chart of the recent year and the year preceding it.


----------



## VSntchr

robusta said:


> Twelve months ago today I picked up my first parcel of Thorn Group
> 
> 
> 
> A few weeks later the price kept on falling so I averaged down.
> 
> 
> 
> In a first for me as a investor I averaged up on a dip in the share price about seven months later.
> 
> 
> 
> So that ends up being a holding of 2913 shares at a cost of $4530.86 or a average price of around $1.556/share.
> 
> The most recent parcel has only received the interim dividend but but for the purposes of this post I will look at the yield on the total investment, $243.62 dividends received gives a yield of 5.38% plus $104.41 in franking credits. This should cover the interest I have to pay on the line of credit.
> 
> If you take today's closing price of $2.04 the market is valuing my $4530.86 investment at $5942.52 or a gain of about 31%. This business I consider a core holding and would have to be offered a very high price by the market to induce me to sell. Long may they grow profits and increase the dividend.
> 
> For those with a technical bent here is a chart of the recent year and the year preceding it.
> 
> View attachment 51650
> View attachment 51651





My TGA story is similar to yours robusta.

I also averaged down when they went sub $1.40, and also bought some more at a higher price recently as I saw the trend of investors flocking to stocks with a good yield....which paid off as the stock is now $2+. I feel as though it is very conservatively priced and it will take a bad report to drop from here..

You say you would need a high price to sell. What do you have in mind? Without seeing the upcoming results I would be starting selling at $2.50+...


----------



## robusta

VSntchr said:


> My TGA story is similar to yours robusta.
> 
> I also averaged down when they went sub $1.40, and also bought some more at a higher price recently as I saw the trend of investors flocking to stocks with a good yield....which paid off as the stock is now $2+. I feel as though it is very conservatively priced and it will take a bad report to drop from here..




Interesting to look back at the debate on the TGA thread that was raging about a year ago. The views put forward by yourself, Craft, Ves, Pioupiou and others looks like a no brainer with 20/20 vision from hindsight. Well done on your investment and thank you for your posts over a year ago.



VSntchr said:


> You say you would need a high price to sell. What do you have in mind? Without seeing the upcoming results I would be starting selling at $2.50+...




Starting to find myself more and more obsessed with compounding, TGA probably has the ability to return a decent rate on money retained within the business over the next few years on top of the nice dividend yield. The price would have to jump to closer to $3.00 to get me to start to consider taking profits.


----------



## robusta

*Investment Sold*

SWL - Seymour Whyte

Sold 2528 @ $1.195 = $3001.01 on Friday.

Have probably done most things wrong with this business, bought too early and have now sold too early. I think this business may be a takeover target in the future. They would make a nice target for some cashed up mining services company looking to diversify their earnings. The problem is I can see some other opportunities in the market and needed to free up some capital so SWL had to go.

Bought this holding in two parcels, the first when the sp was dropping like a stone.


robusta said:


> 1685 x SWL        @$1.18           =$2008.25          19/06/12




The second a bit over a month later as the price continued to fall.


robusta said:


> 843 x SWL          @ $0.895        = $774.44           26/07/12




So that is a total thrown into this business of $2782.69 for a capital gain of $218.32.
In that time SWL has paid me dividends of $94.83 plus $40.63 in franking credits.

Probably should not complain by a return of a bit over 11% in ten months plus franking credits but it could have been better...


----------



## robusta

Here is the twelve month chart for SWL, the first parcel was bought in the middle of that falling knife, the second in the dip not long after.


----------



## robusta

*Investment Increased*

IPP- Iproperty Group

1910 shares @ $0.785 = $1519.30

Bought my first parcel of this business for $0.915 / share back in November, this is the only business I hold that is not making a profit but they are busy building their network and growing profits. Many of the metrics are similar to REA, if they can be half as successful in the next ten years things should work out OK.


----------



## robusta

Almost missed this little milestone for this portfolio, the business that I have held the longest is valued by the market at a bit over double the price I paid. The first parcel was purchased in August 2011, the second through the rights issue in May 2012 when they bought Iprimus.



robusta said:


> 1115    x MTU    @   $2.62      =    $2941.25        08/08/11
> 
> 278  x MTU         @$2.66           =$739.48           21/05/12 (rights issue)




So that is 1393 shares bought for $3680.73. At today's closing price of $5.46 those shares are priced at $7605.78, the dividend is rather nice as well by the way.


----------



## robusta

*New Investment*

SRX - Sirtex Medical Limited

150 x shares @ $9.74 = $1480.95

This does not look like a value investment with the p/e around 20 and high book value multiple. The reason I have bought SRX is because I think they can grow profits well into the future.


----------



## robusta

All the dividends are tucked away for the financial year so probably a time to look at how things are going...

*PORTFOLIO UPDATE*

Since the last update in March I have closed the position in SWL,  increased the IPP investment and taken a new position in SRX

The capital gain from SWL of $218.32 means the capital gain this financial year rises to $713.59  subtracting this from the previous years loss $3095.16 gives a grand negative total of $2381.57.

So far paid the bank $1653.25 in interest and charges  when this is added to last years total of $2303.28 this brings the total I have paid to $3956.53.

Received this financial year $1584.97 in dividends plus $615.07 franking credits when we add to last years dividends $960.33 and franking credits $383.34

The total is $2545.30 in dividends plus $998.41 franking credits.

So that is a *loss of $3792.80*

Better have a look at where the open positions are (including brokerage)

Open Positions
Bought:
1115    x MTU    @   $2.62      =    $2941.25        08/08/11
65       x COH     @   $45.85    =    $3000.20        30/09/11                                                                                                                                   
1023 x NVT        @ $2.93        =    $3017.34        02/02/12           
972 x TGA          @ $1.505          =$1482.81        05/04/12
1074 x TGA         @$1.395          =$1518.18        26/04/12
1912 x DTL         @1.045            =$2017.99        18/05/12
278  x MTU         @$2.66           =$739.48           21/05/12 (rights issue)
2089 x DTL         @$0.92           =$1941.83         18/06/12
1412x EZL          @ $1.055        = $1509.61         17/07/12
1660 xIPP           @ $0.915        = $1538.85         14/11/12
867 x TGA          @ $1.745        = $1532.87          20/11/12
1182 xHHL          @ $2.85          = $3388.65         23/11/12
717  xHHL           @ $2.83          = $2049.06         11/03/13
1910  x IPP          @ $0.785       = $1519.30          22/04/13
150  x  SRX         @ $9.74          = $1480.95         24/04/13
Subtotal      $ 29,678.37

Current Portfolio Market Value

65        x COH       @$70.17  =$4561.05                                        +52.02%
4001    x  DTL       @$1.18    =$4721.18                                        +19.23%
1412     x EZL        @ $1.1  = $1553.20                                       +2.89%
1899    x HHL        @ $2.84  =$5393.16                                          -.82%
3570  x IPP           @ $0.87 = $3105.90                                        +1.56%
1393    x MTU       @ $5.91  = $8232.63                                       +123.67%
1023 x NVT          @ $5.68  = $5810.64                                         +92.57%
150  x SRX         @$10.75   =$1612.50                                          +8.88%
2913  x TGA         @ $2.12 =$6175.56                                         +36.21%

Subtotal = $41,165.82


This brings paper profit considering the open positions to  *$7694.65*

Portfolio market value $41,165.82 minus line of credit drawn of $29,129.48 equals $12036.34 equity.

The $50/week I am throwing at the line of credit now totals $4400.00.

Just had a seniors moment, should I work out the return percentage from my investment ($4400) on the total equity ($12036.34) or the gain on my investment ($7694.65)

Either way this makes a slightly ridiculous percentage return on my invested capital, but owning good businesses with leverage in a rising share market will give you that result. I guess that is the flip side of earlier on when my returns were minus a few thousand percent. 

Credit available $878.52


----------



## Ves

robusta said:


> Just had a seniors moment, should I work out the return percentage from my investment ($4400) on the total equity ($12036.34) or the gain on my investment ($7694.65)
> 
> Either way this makes a slightly ridiculous percentage return on my invested capital, but owning good businesses with leverage in a rising share market will give you that result. I guess that is the flip side of earlier on when my returns were minus a few thousand percent.



I'd work out the return on total invested in the market  (whether it is your money or the bank's money).


----------



## robusta

Ves said:


> I'd work out the return on total invested in the market  (whether it is your money or the bank's money).




That may be the best way Ves but but I am mainly interested in the money I am contributing to the portfoilo and the return I earn on that. Having said that the return percentage considering the open positions is a fairly useless number until those positions are closed. The number I should be concentrating on is the $3792.80 loss and the percentage that is of my investments.


----------



## robusta

The portfolio update above shows the nuts and bolts of the investments so far but I thought I should pull out some important figures and have a bit of a look at some percentages...

The line of credit has $29,129.48 drawn from it and I have put $4400.00 of my own cash in, the realized loss from the closed positions is  $3792.80, when looking at the open positions however I have made a paper gain of $7694.65 and have $12036.34 in equity in the portfolio. (as at before the market open 13/5)

If we look at the return on the total capital invested ( $29,129.48 + $4400.00) there is a realized loss of -11.31% but a paper profit of 22.77%. 

If we look only on the capital I have contributed ($4400.00) then we have a realized loss of -86.2% and a paper profit of 173.55%

The portfolio has only been going for 22 months. This has been a very volatile period for the markets, considering this I think we need a longer period to get a more accurate picture of this investment strategy.


----------



## tech/a

Why do you need more time.
The XAO has risen 30% in the last 12 mths.

What's your nett on $ invested?

By doing the same thing week after week what are you expecting to happen.
Are there aspects you think you should consider.
Are you happy just to leave it as it is?


----------



## robusta

tech/a said:


> Why do you need more time.
> The XAO has risen 30% in the last 12 mths.




Two years ago the XAO was two points higher than it was today, the low was 4033 I don't think that sort of volatility will be the norm over a extended period of time however welcome it may be.



tech/a said:


> What's your nett on $ invested?




See above 



tech/a said:


> By doing the same thing week after week what are you expecting to happen.




Should get more dividends every year and sooner or later there may be some profits taken.



tech/a said:


> Are there aspects you think you should consider.
> Are you happy just to leave it as it is?




There is all ways things to consider but but I think I will give it a bit more of a chance.


----------



## Klogg

robusta said:


> The portfolio has only been going for 22 months. This has been a very volatile period for the markets, considering this I think we need a longer period to get a more accurate picture of this investment strategy.




Robusta, love your work to date and think its great you post all your trades/investments.

However, I invest in a very similar fashion (without leverage) and to be honest, make a LOT less transactions than you. And by all accounts, value investing is all about biding your time, waiting for value to come along.

Not sure if you're using this style of investment, but if you are, I would suggest thinking through your choices of companies a lot more, perhaps be a little more picky.

Nevertheless, I still enjoy your posts - thanks again.


----------



## tech/a

Robusta

In my view you should value your portfolio on it's current 
Liquidated value.
That's what it's worth at any particular time.
You can close out all positions with a phone call.

Open positions should be included.


----------



## craft

Klogg said:


> Robusta, love your work to date and think its great you post all your trades/investments.
> 
> However, I invest in a very similar fashion (without leverage) and to be honest, make a LOT less transactions than you. And by all accounts, value investing is all about biding your time, waiting for value to come along.
> 
> Not sure if you're using this style of investment, but if you are, I would suggest thinking through your choices of companies a lot more, perhaps be a little more picky.
> 
> Nevertheless, I still enjoy your posts - thanks again.




Robusta has some great stocks – they must be cause I have 5 of them.

I think we are seeing the level of activity drop as the level of self edumaction grows and stock selection for the long haul becomes more suited. 

Those high earning volatility stocks when things are going right for them and are being marked up by the market are very seductive .  This caused a bit of activity early on but I suspect that may now be in the past.

Next test will come when we get a decent decline. The margin loan is not going to help psychologically from a volatility of return perspective. (Long term holding is already subject to large drawdown even without leverage)  But the biggest risk question is can you avoid a forced liquidation if you say lose your job at the most inconvenient time?

Great thread and great attitude.  Despite its success, long term investing is not easy to implement let alone doing it live on a forum.


----------



## Intrinsic Value

I think the margin loan is not a bad play if you are investing in high yielding blue chip stocks like the banks and of course in retrospect that would have been a great play if you had.

I am not so sure it is well suited for fundamental investors as you sometimes need to ride out the storm where stock prices may even half before they eventually come good. 

The stock market rise in general is an interesting one because it is heavily skewed towards high yielding safe stocks and very sector centred. 

Many small caps and mid caps have missed out and resource related stocks have not done well at all with many accelerating backwards.


----------



## robusta

Klogg said:


> Robusta, love your work to date and think its great you post all your trades/investments.
> 
> However, I invest in a very similar fashion (without leverage) and to be honest, make a LOT less transactions than you. And by all accounts, value investing is all about biding your time, waiting for value to come along.
> 
> Not sure if you're using this style of investment, but if you are, I would suggest thinking through your choices of companies a lot more, perhaps be a little more picky.
> 
> Nevertheless, I still enjoy your posts - thanks again.




Well, I am trying to be a value investor but you are completely correct I should be way more picky. It took a while to settle on a group of core holdings but there have been too many mistakes both on the buy and sell decisions and in the frequency of those transactions. 



craft said:


> Robusta has some great stocks – they must be cause I have 5 of them.
> 
> I think we are seeing the level of activity drop as the level of self edumaction grows and stock selection for the long haul becomes more suited.
> 
> Those high earning volatility stocks when things are going right for them and are being marked up by the market are very seductive .  This caused a bit of activity early on but I suspect that may now be in the past.




Hope you are right, if something with high earning volatility is to be purchased in the future is should be when it is loathed by the market.



craft said:


> Next test will come when we get a decent decline. The margin loan is not going to help psychologically from a volatility of return perspective. (Long term holding is already subject to large drawdown even without leverage)



The volatility of returns should not be a problem to me psychologically, I think my challenge will be to adopt a more conservative stance during a extended bull market. I seem to like to be fully invested, this will hinder my ability to take advantage of future opportunities during bear markets.



craft said:


> But the biggest risk question is can you avoid a forced liquidation if you say lose your job at the most inconvenient time?




Loss of employment, incapacitating illness or divorce are the three mains risks that could force a liquidation of this portfolio.



craft said:


> Great thread and great attitude.  Despite its success, long term investing is not easy to implement let alone doing it live on a forum.




Thank you, I will take the compliment on attitude as I think that is my 'edge', my knowledge of accountancy, cash flow analysis, asset valuation, DCF and asset allocation still needs a lot of work however.


----------



## robusta

tech/a said:


> Robusta
> 
> In my view you should value your portfolio on it's current
> Liquidated value.
> That's what it's worth at any particular time.
> You can close out all positions with a phone call.
> 
> Open positions should be included.




Thank you tech/a, in the future I intend to show the current liquidated value of the portfolio and also the nett realised returns. This should give a more accurate picture, while the headline figure may look satisfactory at the moment comparing to the nett return will show how much is 'at risk' in the market.


----------



## robusta

Intrinsic Value said:


> I think the margin loan is not a bad play if you are investing in high yielding blue chip stocks like the banks and of course in retrospect that would have been a great play if you had.
> 
> I am not so sure it is well suited for fundamental investors as you sometimes need to ride out the storm where stock prices may even half before they eventually come good.
> 
> The stock market rise in general is an interesting one because it is heavily skewed towards high yielding safe stocks and very sector centred.
> 
> Many small caps and mid caps have missed out and resource related stocks have not done well at all with many accelerating backwards.




The debt attached to this portfolio is a line of credit not a margin loan, so as long as the interest payments are serviced there will be no margin call from the bank.

The hunt for yield and subsequent rise in the prices of blue chip stocks like the banks and Telstra has surprised me, you are right it would have been a great strategy to buy these with leverage a year ago. It would not surprise me to see these stocks go through a long period of under performance into the future.

Many fundamental investors warn against the the use of leverage including Warren Buffett, when you look at his career however he has used cheap leverage on conservative investments throughout via the float from the insurance businesses.

http://www.forbes.com/sites/timwors...t-of-warren-buffetts-success-double-leverage/


----------



## Intrinsic Value

I think you probably could have done better if you had held on to your convictions on quite a few stocks instead of exiting early.

You sometimes have to very patient if you want to be successful as a fundamental investor. 

I know I am kicking myself on a few stocks that I got rid off because I thought they weren't performing well enough and they weren't actually moving yet I spend a lot of time researching them and thought they were well undervalued at the time.

MMS springs to mind that I sold at around 7 dollars and CCV at 50c and CCP at 4.00, and ANZ at 22 dollars.


----------



## burglar

Intrinsic Value said:


> ... I am kicking myself on a few stocks ...




I found that kicking myself leaves bruises, but suits no useful purpose. :


----------



## robusta

Intrinsic Value said:


> I think you probably could have done better if you had held on to your convictions on quite a few stocks instead of exiting early.
> 
> You sometimes have to very patient if you want to be successful as a fundamental investor.
> 
> I know I am kicking myself on a few stocks that I got rid off because I thought they weren't performing well enough and they weren't actually moving yet I spend a lot of time researching them and thought they were well undervalued at the time.
> 
> MMS springs to mind that I sold at around 7 dollars and CCV at 50c and CCP at 4.00, and ANZ at 22 dollars.




You are right, patience is a virtue. There are too many investments I have sold too early CCP being one of them, but a couple I have held onto have done OK.

On a unrelated topic I like to update my investment on the anniversary of purchase and today it is DTL's turn.

This is my post on the first investment.


robusta said:


> *New Investment*
> 
> DTL- Data#3 Limited
> 
> 1912 x DTL @ $1.045     $1998.04
> 
> I have been looking to pick up some DTL for a while now, probably have Wayne Swans horror budget to thank for the opportunity.
> 
> High ROE, good dividend yield, nice history of growth.
> 
> Take a look at the DTL thread, this is a interesting stock IMO.




A few weeks later the price fell further so I picked up some more.


robusta said:


> *Investment Increased*
> 
> Bought 2089 X DTL @ $0.92 = $1921.88
> 
> This is basically what I pulled out of CKF, I think the capital has found a better home. In a few years people will be wondering how I managed to pick up DTL under $1.00




So 4001 shares at a cost of $3959.82 (including brokerage) or a touch under $0.99/share.

They have paid me $280.07 in dividends plus $120.03 in franking credits. That is a yield of 7.07% excluding the franking credits. The line of credit is costing 5.95% with the latest round of interest rate cuts still to come.

For what it is worth if you take Fridays closing price of $1.235 the market is valuing my holding at $4941.35

I normally only look at charts about once a year and this is another one that reinforces my decision not to use stop losses. The first chart is for the year preceding my purchase the second is for the year just gone. Both are compared to the XAO.


----------



## Klogg

robusta said:


> I normally only look at charts about once a year and this is another one that reinforces my decision not to use stop losses. .




Couldn't agree more.


----------



## Huskar

robusta said:


> The debt attached to this portfolio is a line of credit not a margin loan, so as long as the interest payments are serviced there will be no margin call from the bank.
> 
> The hunt for yield and subsequent rise in the prices of blue chip stocks like the banks and Telstra has surprised me, you are right it would have been a great strategy to buy these with leverage a year ago. It would not surprise me to see these stocks go through a long period of under performance into the future.
> 
> Many fundamental investors warn against the the use of leverage including Warren Buffett, when you look at his career however he has used cheap leverage on conservative investments throughout via the float from the insurance businesses.
> 
> http://www.forbes.com/sites/timwors...t-of-warren-buffetts-success-double-leverage/




I'm with you on this for sure and think it is often misunderstood part of Uncle Warren's success. The key lesson for me is to leverage as much as you possibly can provided you can do it intelligently (a big if). 

That is what he did but not by the traditional path of borrowing from a bank. He leveraged off of other people's money by getting them to pay him to hold it (as an investment manager). (Somewhere in the Buffett partnership letters WB notes the very impressive ~40% return for the year and continues with "and some wag said it must have been a very good year for me"). 

Then in Berkshire Hathaway he found another way to leverage by taking advantage of the insurance business model where they are paid for holding other people's money (the float).

Not sure where line of credit on the house would fall into this but while you are ahead it is looking pretty good!


----------



## robusta

Huskar said:


> I'm with you on this for sure and think it is often misunderstood part of Uncle Warren's success. The key lesson for me is to leverage as much as you possibly can provided you can do it intelligently (a big if).




You are right that is a BIG IF. 



Huskar said:


> That is what he did but not by the traditional path of borrowing from a bank. He leveraged off of other people's money by getting them to pay him to hold it (as an investment manager). (Somewhere in the Buffett partnership letters WB notes the very impressive ~40% return for the year and continues with "and some wag said it must have been a very good year for me").
> 
> Then in Berkshire Hathaway he found another way to leverage by taking advantage of the insurance business model where they are paid for holding other people's money (the float).
> 
> Not sure where line of credit on the house would fall into this but while you are ahead it is looking pretty good!




Things are looking OK for the moment but less than two years is not enough to judge. The next major challenge will be to see how disciplined I can be when there is not much value around. 

A story like this one rouses some contrarian instincts. 
http://www.news.com.au/money/invest...he-party-started/story-e6frfmdr-1226646708819

I took some profits today.

*Investment Reduced*

Sold 466 X MYU @ $6.11 = $2827.31 for a capital gain of $1598.00

This is a little over a third of my holding sold and brings the MTU investment back to 14.7% of my open portfolio at current prices. Unless the price appreciates markedly from here I will be happy to sit back, collect the dividends and read the next annual report.


----------



## robusta

*Investment Increased*

Hunter Hall hit a 52 week low today, I hold some and had some cash available so picked up another parcel. The danger with this business is a prolonged period of under performance of the funds. Hope we are not in a period like the "nifty fifty" the Americans went through in the 60's and 70's.  

Bought 638 @ $2.35 = $1519.25


----------



## robusta

Couple of changes in the last month so here is another *PORTFOLIO UPDATE*

Since the last update I took some profits in MTU and increased the position in HHL.

The capital gain from MTU of $1598.00 means the capital gain this financial year rises to $2311.59  subtracting this from the previous years loss $3095.16 gives a grand negative total of $783.57, slowly getting my trading back to break even.

So far paid the bank $1794.75 in interest and charges  when this is added to last years total of $2303.28 this brings the total I have paid to $4098.03

Received this financial year $1584.97 in dividends plus $615.07 franking credits when we add to last years dividends $960.33 and franking credits $383.34

The total is $2545.30 in dividends plus $998.41 franking credits.

So that is a *loss of $2336.30*

Better have a look at where the open positions are (including brokerage)

Open Positions
Bought:
649    x MTU    @   $2.62       =    $1711.99       08/08/11
65       x COH     @   $45.85    =    $3000.20        30/09/11                                                                                                                                   
1023 x NVT        @ $2.93        =    $3017.34        02/02/12           
972 x TGA          @ $1.505          =$1482.81        05/04/12
1074 x TGA         @$1.395          =$1518.18        26/04/12
1912 x DTL         @1.045            =$2017.99        18/05/12
278  x MTU         @$2.66           =$739.48           21/05/12 (rights issue)
2089 x DTL         @$0.92           =$1941.83         18/06/12
1412x EZL          @ $1.055        = $1509.61         17/07/12
1660 xIPP           @ $0.915        = $1538.85         14/11/12
867 x TGA          @ $1.745        = $1532.87          20/11/12
1182 xHHL          @ $2.85          = $3388.65         23/11/12
717  xHHL           @ $2.83          = $2049.06         11/03/13
1910  x IPP          @ $0.785       = $1519.30          22/04/13
150  x  SRX         @ $9.74          = $1480.95         24/04/13
638   xHHL          @ $2.35          = $1519.25         30/05/13
Subtotal      $ 29,968.35

Current Portfolio Market Value

65        x COH       @$64.54  =$4195.10                                      +39.83%
4001    x  DTL       @$1.19    =$4761.19                                        +20.24%
1412     x EZL        @ $1.01  = $1426.12                                      +5.53%
2537    x HHL        @ $2.35  =$5961.95                                          -14.3%
3570  x IPP           @ $0.72 = $2570.40                                        -15.95%
927    x MTU       @ $5.42  = $5024.34                                      +104.95%
1023 x NVT          @ $5.62  = $5749.26                                        +90.54%
150  x SRX         @$11.50  =$1725.00                                          +16.48%
2913  x TGA         @ $2.19 =$6379.47                                        +40.71%

Subtotal = $37,792.83                                         +26.11%


This brings paper profit considering the open positions to  *$5488.18*

Portfolio market value $37,792.83 minus line of credit drawn of $27,804.92 equals $9987.91 equity.

The $50/week I am throwing at the line of credit now totals $4550.00

Credit available $2195.08


----------



## robusta

Here is a perfect example of why I don't get to exited or depressed about percentage returns at the moment. This post from about three weeks ago.



robusta said:


> The portfolio update above shows the nuts and bolts of the investments so far but I thought I should pull out some important figures and have a bit of a look at some percentages...
> 
> The line of credit has $29,129.48 drawn from it and I have put $4400.00 of my own cash in, the realized loss from the closed positions is  $3792.80, when looking at the open positions however I have made a paper gain of $7694.65 and have $12036.34 in equity in the portfolio. (as at before the market open 13/5)
> 
> If we look at the return on the total capital invested ( $29,129.48 + $4400.00) there is a realized loss of -11.31% but a paper profit of 22.77%.
> 
> If we look only on the capital I have contributed ($4400.00) then we have a realized loss of -86.2% and a paper profit of 173.55%
> 
> The portfolio has only been going for 22 months. This has been a very volatile period for the markets, considering this I think we need a longer period to get a more accurate picture of this investment strategy.




The line of credit has $27,804.92 drawn from it and I have put $4550.00 of my own cash in, the realized loss from the closed positions is  $2336.30, when looking at the open positions however I have made a paper gain of $5488.18 and have $9987.91 in equity in the portfolio. 

If we look at the return on the total capital invested ( $27,804.92 + $4550.00) there is a realized loss of -7.22% but a paper profit of 16.96%. 

If we look only on the capital I have contributed ($4550.00) then we have a realized loss of -51.34% and a paper profit of 120.61%

The combination of leverage and market volatility is making it too early for these returns to mean much.


----------



## robusta

"Amateurs open the market, but professionals close it” is a stock market adage that’s been cited in print since at least 1993. Amateurs submit their trading orders in the morning (after spending the afternoon and evening analyzing events with stockbrokers and family members), but professionals follow market activities throughout the trading day and lock in their positions at the close of trading."

Trading for a Living: 
Psychology, trading tactics, money management 
By Alexander Elder 

For ages I have been banging on on about Cochlear and how I would become interested in buying more if the price got closer to $55.00 the price got close but not close enough and every time I regretted not adding to my position until today... Anyway the price fell around 14% this morning....

*Investment Increased*

Bought 27 x COH @ $56.23 = $1538.15

The shares finished the day at $52.88, if I had waited I could have almost got another share for the same outlay.


----------



## Ves

robusta said:


> For ages I have been banging on on about Cochlear and how I would become interested in buying more if the price got closer to $55.00 the price got close but not close enough and every time I regretted not adding to my position until today... Anyway the price fell around 14% this morning....



I've had similar experiences with a few companies like that recently.   I've so far been relentless in my initial judgment. Easier said than done sometimes - in your case it is just over 2%. Mine have been more like 5-10% so I wouldn't beat yourself up too much over it.

If COH is the *right company *at close to the right price  (ie. 2% off what you thought) it will still pay off in the long run. The bold part is more important when we are talking about long-term rounding adjustments.


----------



## robusta

Ves said:


> I've had similar experiences with a few companies like that recently.   I've so far been relentless in my initial judgment. Easier said than done sometimes - in your case it is just over 2%. Mine have been more like 5-10% so I wouldn't beat yourself up too much over it.
> 
> If COH is the *right company *at close to the right price  (ie. 2% off what you thought) it will still pay off in the long run. The bold part is more important when we are talking about long-term rounding adjustments.




Cheers the one thing I am certain of is the buy decision will look either smart or dumb at some point in the future.


----------



## craft

robusta said:


> Cheers the one thing I am certain of is the buy decision will look either smart or dumb at some point in the future.




Probably look both smart and dumb just at different points in time.


----------



## brty

Robusta,

After perusing a couple of pages of this thread, I just realised something that you may not have considered. SRX.

Sirtex and HHL are rather tied together in performance, the CEO of Hunter-Hall mentioned the good performance of SRX as a large contributing factor in the funds overall performance in the half yearly report. To me it signalled that the people at HHL were getting desperate for performance, betting on some above market returns to improve their standing and therefore business. When a business starts taking on large 'bets', it is usually not a good sign.

The fact that the share price of HHL is at multy year lows, below the GFC bottom should send up alarm bells about it, not as something to load up on. If my analysis is close to correct, you have now added into the biggest loser in your portfolio, while taking profits on a winner like MTU. The total invested dollars is greatest in HHL, the worst performer.

Your decision to invest more in HHL while dumping MTU may turn out to be a good one, however one of the weakness of such outcomes is that it increases confidence that such actions are profitable (adding to losers and selling winners), therefore next time the same situation arises, same decision. 

These type of actions lead to the possibility that when an overall market correction comes along, you will have  most money invested in the biggest losers while the rest is in cash, of course in the need for performance, more gets invested in the losers. This then leads to phychological pressures about the losses if/when the market continues down. The typical selling of all positions often comes near the market bottom to relieve the pain.

My suggestion is that you review your entire investment strategy plus your original goals and aims. It is something we all need to do on a regular basis. We all make mistakes and the trick in investment is to keep the mistakes small.


----------



## robusta

brty said:


> Robusta,
> 
> After perusing a couple of pages of this thread, I just realised something that you may not have considered. SRX.
> 
> Sirtex and HHL are rather tied together in performance, the CEO of Hunter-Hall mentioned the good performance of SRX as a large contributing factor in the funds overall performance in the half yearly report. To me it signalled that the people at HHL were getting desperate for performance, betting on some above market returns to improve their standing and therefore business. When a business starts taking on large 'bets', it is usually not a good sign.




You are correct the HHL funds largest holding is SRX, by some coincidence MTU is also one of the largest positions. HHL have often in the past taken large bets when they see something they really like the value of. HHL at one stage held about 30% of SRX recently as the sp has risen and following the prompting of the new CEO that holding has been sold down to a bit over 20%.

Here is a video of Peter Hall talking about the investment in 2009.

http://www.youtube.com/watch?v=K83mDZFmYHM



brty said:


> The fact that the share price of HHL is at multy year lows, below the GFC bottom should send up alarm bells about it, not as something to load up on. If my analysis is close to correct, you have now added into the biggest loser in your portfolio, while taking profits on a winner like MTU. The total invested dollars is greatest in HHL, the worst performer.
> 
> Your decision to invest more in HHL while dumping MTU may turn out to be a good one, however one of the weakness of such outcomes is that it increases confidence that such actions are profitable (adding to losers and selling winners), therefore next time the same situation arises, same decision.




This is not something I like to do the strategy calls for letting winners run while cutting losers short (often after holding them for a while to check they are really losers ) Having said that MTU had become the largest position but I think the sp had run a bit further than the value of the company. Nothing had changed from my initial thesis on HHL and as the most undervalued business I could find that I was comfortable to invest in more than happy to make HHL the recipient of the largest slice of my capital.



brty said:


> These type of actions lead to the possibility that when an overall market correction comes along, you will have  most money invested in the biggest losers while the rest is in cash, of course in the need for performance, more gets invested in the losers. This then leads to phychological pressures about the losses if/when the market continues down. The typical selling of all positions often comes near the market bottom to relieve the pain.
> 
> My suggestion is that you review your entire investment strategy plus your original goals and aims. It is something we all need to do on a regular basis. We all make mistakes and the trick in investment is to keep the mistakes small.




Thank you very much for your thoughtful post brty, you are correct a regular review is a excellent idea, I think I should pay particular attention to position sizing.


----------



## robusta

EOFY is here so... another *PORTFOLIO UPDATE*


Capital gain this financial year rises to $2311.59  subtracting this from the previous years loss $3095.16 gives a  negative total of $783.57, slowly getting my trading back to break even.

So far paid the bank $1930.30 in interest and charges  when this is added to last years total of $2303.28 this brings the total I have paid to $4233.58

Received this financial year $1584.97 in dividends plus $615.07 franking credits when we add to last years dividends $960.33 and franking credits $383.34

The total is $2545.30 in dividends plus $998.41 franking credits.

So that is a *loss of $2471.85*

Better have a look at where the open positions are (including brokerage)

Open Positions
Bought:
649    x MTU    @   $2.62       =    $1711.99       08/08/11
65       x COH     @   $45.85    =    $3000.20        30/09/11                                                                                                                                   
1023 x NVT        @ $2.93        =    $3017.34        02/02/12           
972 x TGA          @ $1.505          =$1482.81        05/04/12
1074 x TGA         @$1.395          =$1518.18        26/04/12
1912 x DTL         @1.045            =$2017.99        18/05/12
278  x MTU         @$2.66           =$739.48           21/05/12 (rights issue)
2089 x DTL         @$0.92           =$1941.83         18/06/12
1412x EZL          @ $1.055        = $1509.61         17/07/12
1660 xIPP           @ $0.915        = $1538.85         14/11/12
867 x TGA          @ $1.745        = $1532.87          20/11/12
1182 xHHL          @ $2.85          = $3388.65         23/11/12
717  xHHL           @ $2.83          = $2049.06         11/03/13
1910  x IPP          @ $0.785       = $1519.30          22/04/13
150  x  SRX         @ $9.74          = $1480.95         24/04/13
638   xHHL          @ $2.35          = $1519.25         30/05/13
27 x COH            @ $56.23         = $1538.15        03/06/2013

Subtotal      $ 31,506.51

Current Portfolio Market Value

92        x COH       @$61.71  =$5677.32                                     +25.10%
4001    x  DTL       @$1.075    =$4301.08                                      +8.62%
1412     x EZL        @ $1.00  = $1412.00                                      -6.47%
2537    x HHL        @ $1.73  =$4389.01                                        -36.91%
3570  x IPP           @ $0.75 = $2677.50                                        -12.45%
927    x MTU       @ $5.85  = $5422.95                                      +121.21%
1023 x NVT          @ $5.77  = $2902.71                                       +95.63%
150  x SRX         @$11.98  =$1797.00                                          +21.34%
2913  x TGA         @ $2.03 =$5913.39                                       +30.43%

Subtotal = $37,492.96                                         +19.00%


This brings paper profit considering the open positions to  *$3514.60*

Portfolio market value $37,492.96 minus line of credit drawn of $29,278.63 equals $8214.33 equity.

The $50/week I am throwing at the line of credit now totals $4750.00

Credit available $721.37


----------



## robusta

Here goes with some percentages;

The line of credit has $29,278.63 drawn from it and I have put $4750.00 of my own cash in, the realized loss from the closed positions is  $2471.85, when looking at the open positions however I have made a paper gain of $3514.60 and have  $8214.33 in equity in the portfolio. 

If we look at the return on the total capital invested ( $29,278.63 + $4750.00) there is a realized loss of -8.06% but a paper profit of 10.33%. 

If we look only on the capital I have contributed ($4750.00) then we have a realized loss of -57.72% and a paper profit of 73.99%

Probably more than a little silly to look at CAGR after two years, the first year for this portfolio was a shocker while this second one has been a little better. When I started this portfolio the All ords @ 25/07/11 was 4603.80 today it is 4775.40 so despite all my mistakes it seems I have done a little better than the market.


----------



## robusta

Comparing the portfolio from twelve months ago;

Current Portfolio Position

65        x COH       @$65.84  =$4279.60
4001    x  DTL       @$1.11    =$4441.11
6250    x KAM       @$0.28    = $1750.00
1393    x MTU       @ $3.36  = $4680.48
1023 x NVT          @ $4.34  = $4439.82
1373  x OKN         @$1.05   = $1441.65
4000 x PET           @$0.80  =$3200.00
916    x PRV         @$0.64 = $586.24
1685  x SWL         @$0.995=$1676.58
2046  x TGA          @ $1.46=$2987.16

Subtotal = $29,482.64

With how it looks today;

Current Portfolio Market Value

92        x COH       @$61.71  =$5677.32                                     
4001    x  DTL       @$1.075    =$4301.08                                     
1412     x EZL        @ $1.00  = $1412.00                                      
2537    x HHL        @ $1.73  =$4389.01                                        
3570  x IPP           @ $0.75 = $2677.50                                        
927    x MTU       @ $5.85  = $5422.95                                      
1023 x NVT          @ $5.77  = $2902.71                                      
150  x SRX         @$11.98  =$1797.00                                         
2913  x TGA         @ $2.03 =$5913.39                                       

Subtotal = $37,492.96 

The businesses I consider core holdings are on the whole doing OK. There has been no change in the DTL and NVT positions while I have found the opportunity to add to the COH and TGA positions, while taking some profits from MTU.

Now to some mistakes, I sold KAM for a small profit, the 52 week high was $0.72 and yesterdays close was $0.41                                        

Sold PET for a small profit because I did not like the position they took in JC Penney anyway not long after the NTA went up and the manager announced a return of capital, so I missed out on about another 30% gain.

Sold PRV for a very small profit, not long after they were taken over and the discount to NTA vanished along with a opportunity of another 30% gain for me.

We will have to wait to see if this is a mistake but I have HHL has the largest allocation of my capital, that holding is trading a touch under 37% less than the price I paid for it.


----------



## brty

Robusta,

The numbers do not look correct, so I added your current portfolio. I get a total of  $34,492.96 not $37,492.96. 

Just noticed, your total for nvt 1023 shares at $5.77 = $2,902.71 not the correct $5,902.77, the total then adds up.

It is important to keep the little details in the spreadsheet accurate.

Looking from the outside, you have a profit of $3,514.60, yet if you had just saved the $50/week you would have $4,750, is this correct? It has cost $1,200 to get a little education in the real market. This is fairly cheap compared to most.

If I can be so bold to make a couple of comments. Firstly apart from the obvious mistake of having the largest number of dollars invested in the biggest loser, HHL there is also the position in EZL. 

EZL went up by 30% in a short period of time, 7 months after you purchase it, yet it is still on your books as a loss now. There is a saying in investment about never letting a profit turn into a loss. This seems to be what you have done here. Similar with IPP, though not as prominent.

From the bleachers I see that you have added twice to the biggest loser HHL and not at all to the biggest winners in NTV +MTU (the second purchase in MTU only raised the invested funds to ~$2500 and at similar price to the first purchase). The amount of cash invested in the biggest winners is less than half that invested in the biggest loser. This pattern does not a make profitable portfolio. 

Your stock selection and timing for entry has been pretty sound in hindsight, yet your trading of these stocks could have led to a vastly different performance. Have used your existing entry scenarios and tested some different trading scenarios of the same portfolio, such as adding to winners and cutting losers, or running a trailing stop loss and re-entry at some lower prices (percentage, support, whatever)??

There is always more homework with investing...


----------



## robusta

brty said:


> Robusta,
> 
> The numbers do not look correct, so I added your current portfolio. I get a total of  $34,492.96 not $37,492.96.
> 
> Just noticed, your total for nvt 1023 shares at $5.77 = $2,902.71 not the correct $5,902.77, the total then adds up.
> 
> It is important to keep the little details in the spreadsheet accurate.




It is not a spreadsheet but only a balance sheet written on the back of a beer coaster, thank you for spotting the typo however.



brty said:


> Looking from the outside, you have a profit of $3,514.60, yet if you had just saved the $50/week you would have $4,750, is this correct? It has cost $1,200 to get a little education in the real market. This is fairly cheap compared to most.




That profit of $3,514.60 is on top of the $4,750 I have contributed to the portfolio. The portfolio return is a little under 74% over the two years.

 Looks like I have made a error somewhere in the balance sheet, I have $8241.33 equity, if I minus the $4750 contributed the profit should be $3491.33.



brty said:


> If I can be so bold to make a couple of comments. Firstly apart from the obvious mistake of having the largest number of dollars invested in the biggest loser, HHL there is also the position in EZL.
> 
> EZL went up by 30% in a short period of time, 7 months after you purchase it, yet it is still on your books as a loss now. There is a saying in investment about never letting a profit turn into a loss. This seems to be what you have done here. Similar with IPP, though not as prominent.




I am not so sure EZL is a loss, the shares have not been sold yet and I am fairy sure the dividends will cover the cost of my capital. The fact that the share price went up 30% makes little or no difference to me.  COH, NVT, MTU, DTL, TGA, EZL and even HHL have all gone up around 30% at one time or another some have increased in price since then and some have fallen. This is not a trend following strategy the difference in price to my estimate of the value of the business determines the decisions to buy, sell or hold.



brty said:


> From the bleachers I see that you have added twice to the biggest loser HHL and not at all to the biggest winners in NTV +MTU (the second purchase in MTU only raised the invested funds to ~$2500 and at similar price to the first purchase). The amount of cash invested in the biggest winners is less than half that invested in the biggest loser. This pattern does not a make profitable portfolio.




Right or wrong HHL was the most undervalued stock I could find so more capital has been allocated in that direction while NVT and MTU look a little overvalued to me hence holding NVT and and taking some profits in MTU seemed to be the best decision. 
It would be nice to know in advance which purchases will be the biggest winners so I could allocate more capital in that direction.



brty said:


> Your stock selection and timing for entry has been pretty sound in hindsight, yet your trading of these stocks could have led to a vastly different performance. Have used your existing entry scenarios and tested some different trading scenarios of the same portfolio, such as adding to winners and cutting losers, or running a trailing stop loss and re-entry at some lower prices (percentage, support, whatever)??
> 
> There is always more homework with investing...




Stop losses will not work well with this strategy, and it does not make sense to me to buy more of something because the price has increased I would be more inclined to buy more if the price decreases.


----------



## robusta

Another nice little milestone for this portfolio, the second investment to double in price.

There seemed to be bad news all around a year and a half ago.
1023 x NVT @ $2.93 = $3017.34 02/02/12

The dividend is very nice as well.


----------



## robusta

Another little milestone 12 months ago I established a position in EZL, this is my post from back then.



robusta said:


> *NEW INVESTMENT*
> 
> EZL - Euroz Limited
> 
> Bought 1412 @ $1.055 = $1489.66
> 
> Well I just like the way these guys allocate capital, the holdings in OZG & WIC are a bonus, also good leverage to any possible rebound in world growth.
> 
> Fully invested now, need some dividends if I am going to buy anymore - lucky for me tis the season.




So including brokerage $1509.61 when I bought it it was ex dividend, this year it goes ex dividend tomorrow. So the only money returned to me is $21.18 in dividends.

If we take today's closing price of $1.035 the market is valuing my holding at $1461.42. Looks like the price has gone nowhere in the last year, the chart tells another story.


----------



## robusta

Just a little house keeping today, there has been a slight change in my personal financial situation so from today I will be contributing the grand sum of $75.00 per week to this portfolio.

Another milestone to the portfolio today it has been two years since MTU was added as an investment. Here is my post from twelve months ago.



robusta said:


> Nice little milestone for this portfolio today, managed to hold on to a investment in a company for 12 months.
> 
> 
> 
> Really should include brokerage in the costing so in total $3680.73 has been invested in this company, no dividend has been paid yet on the converted shares but two $0.09 dividends have been received for a return of $200.70 this gives me a yield of ~5.45% plus $86.02 in franking credits. The cost of my capital through the line of credit is currently 6% so that is a fail on that first hurdle.
> 
> To use some ratings agency speak I currently have this company on a "negative watch", after the major acquisition in May I understand debt will be higher, ROE and EPS will be lower for the most recent reporting period. In the absence of any surprises in the Annual report I will be watching the interim and following full year report to see debt being paid down and returns increasing. Before May I would not have considered selling below ~$4.25 now $3.80 + would give me something to think about.
> 
> For what it is worth looking at todays closing price of $3.44 the market is offering buy my interest in MTU back for $4791.92




Seems I have more confidence in their ability to execute on acquisitions now than I did a year ago. Anyway I took some profits earlier this year.



robusta said:


> A story like this one rouses some contrarian instincts.
> http://www.news.com.au/money/invest...he-party-started/story-e6frfmdr-1226646708819
> 
> I took some profits today.
> 
> *Investment Reduced*
> 
> Sold 466 X MYU @ $6.11 = $2827.31 for a capital gain of $1598.00
> 
> This is a little over a third of my holding sold and brings the MTU investment back to 14.7% of my open portfolio at current prices. Unless the price appreciates markedly from here I will be happy to sit back, collect the dividends and read the next annual report.




In the last twelve months MTU has paid me $264.67 in dividends plus $113.43 in franking credits.

So to sum up $3680.73 invested minus $2827.31 taken back out through profit taken minus $465.37 in dividends received means I have recouped all but $388.05 of my original investment.

We could work out percentage returns but those would mean little in this situation.

For what it is worth if we take today's closing price of $6.45 the market thinks my remaining holding is worth $5979.15, the dividend should increase this year as well. 

Happy days


----------



## Boggo

robusta said:


> Another milestone to the portfolio today it has been two years since *MTU* was added as an investment. Here is my post from twelve months ago.




Have got (quite) a few of those in my SMSF robusta


----------



## robusta

Boggo said:


> Have got (quite) a few of those in my SMSF robusta




Good on you I don't have many - yet.


----------



## kermit345

Hi All,

Haven't posted for some time but thought i'd ask the question now given CGF's positive FY reporting today. About 12 months ago I mentioned it on here and there was some brief conversation about CGF. Was wondering if So_Cynical, odds-on or robusta ended up grabbing some?

I'm disappointed now that I didn't grab more, looks like they have the increased capital requirement covered with ease even though they are still in the transitional period and they continue to steadily increase EPS, dividends and will begin franking next year. Couple this with the buyback that continues to make about 9.5cps a year difference and you end up with a steadily increasing share price.

Market movements over the last 6-9 months has certainly helped their Fund Manager side as well. So did anyone else climb aboard the CGF train 12 months ago?


----------



## robusta

One of the main criticisms I have copped and very deservedly so while posting this portfolio from over trading. My last trade (a top up of Cochlear) was on the 3/6/13. At my next TA meeting (Traders Anonymous) meeting I will have to own up to,

*Investment Reduced*

Sold 300 x MTU $6.25 = $1855.05

I still really like this business, the reoccurring revenues and growth are a thing of beauty but this is the second time profits have been taken from this business. The reason MTU has been picked on twice is I think it is the holding most overvalued with the least competitive advantage in the portfolio.


----------



## burglar

robusta said:


> ... Sold 300 x MTU $6.25 = $1855.05 ...




What can I say?



> "Nobody ever lost money taking a profit." - Bernard Baruch quotes





A chart - because I am a visual person!


----------



## craft

burglar said:


> What can I say?
> 
> 
> "Nobody ever lost money taking a profit." - Bernard Baruch quotes



Considering nobody is an omniscient investor and will have losses to offset  – that’s potentially a very misleading use of a quote. 


"Continual trimming will turn your money tree into a bonsai." - Craft.

MTU's total return chart.



Robusta 



> The reason MTU has been picked on twice is I think it is the holding most overvalued with the least competitive advantage in the portfolio.



I can’t argue with this as a reason for switching to a better alternative. 

But I have one question and it doesn’t just relate to this instance and its one I ask myself all the time. 

Is your analysis driving your action or is the gut feel inclination to act a particular way driving the analysis?

Cheers


----------



## burglar

craft said:


> ... potentially a very misleading use of a quote ...




Sorry about that! Just trying to add to the debate without first becoming a PHD!



craft said:


> "Continual trimming will turn your money tree into a bonsai." - Craft. ...




Not so terribly cheep Bonsai!!


----------



## tech/a

> "Nobody ever lost money taking a profit." - Bernard Baruch quotes




That's not exactly accurate.
You *CAN* actually go broke taking a profit.


----------



## robusta

craft said:


> Considering nobody is an omniscient investor and will have losses to offset  – that’s potentially a very misleading use of a quote.
> 
> 
> "Continual trimming will turn your money tree into a bonsai." - Craft.
> 
> MTU's total return chart.
> View attachment 54212
> 
> 
> Robusta
> 
> 
> I can’t argue with this as a reason for switching to a better alternative.
> 
> But I have one question and it doesn’t just relate to this instance and its one I ask myself all the time.
> 
> Is your analysis driving your action or is the gut feel inclination to act a particular way driving the analysis?
> 
> Cheers




Thank you Craft that is a excellent question, I have been thinking about it for a few days and I'm still not sure of the answer.

This particular decision is more a portfolio management decision. There is a little illiquid microcap that I have a open buy order in the market...


----------



## robusta

Another anniversary for the portfolio today, two years since I first purchased some shares in Cochlear.

The first parcel was just after the recall;



robusta said:


> 65       x COH     @   $45.85    =    $3000.20        30/09/11




 The second on some recent share price weakness.  



robusta said:


> 27 x COH            @ $56.23         = $1538.15        03/06/2013




It probably comes with the territory this being the largest cap in the portfolios but the brokers have been having a field day with this one. Constant upgrades and downgrades along with regular appearances on the list of the top ten shorted stocks.

So $4538.35 invested at a average buy price of $49.33. Cochlear has paid a total dividend per share of $2.52 over the last twelve months. So my yield is a touch over 5.1% plus a handful of franking credits. The real measure of success for this investment is how much will they grow into the future? I am happy to hold for a while to see how things work out.

If we take today's closing price of $60.48 the market is currently valuing my investment at $5564.16 as you can see from the chart below it has been a wild ride.


----------



## robusta

*New Investment*

IMF Australia Limited

Bought 819 IMF @ $1.83 = 1518.72 3/10/2013

This business has a fantastic record of excellent returns on capital deployed. The competitive advantage seem to me the ability to pick cases with a decent chance of a return and the feedback of the better cases being offered to IMF. The advantages of earnings not being tied to the economic cycle and the chance of growing foreign currency revenues are also attractive.

There has been many chances to pick up these shares at lower prices in the last couple of years. I have been watching this business for a while but have never had a chance to fit some into the portfolio. While the shares are not overly cheap there should be some upside on this small position given a long enough time frame.


----------



## McLovin

robusta said:


> *New Investment*
> 
> IMF Australia Limited
> 
> Bought 819 IMF @ $1.83 = 1518.72 3/10/2013
> 
> This business has a fantastic record of excellent returns on capital deployed. The competitive advantage seem to me the ability to pick cases with a decent chance of a return and the feedback of the better cases being offered to IMF. The advantages of earnings not being tied to the economic cycle and the chance of growing foreign currency revenues are also attractive.
> 
> There has been many chances to pick up these shares at lower prices in the last couple of years. I have been watching this business for a while but have never had a chance to fit some into the portfolio. While the shares are not overly cheap there should be some upside on this small position given a long enough time frame.




You could have gotten the notes, which are shortly to be converted, for $1.71 yesterday.


----------



## robusta

McLovin said:


> You could have gotten the notes, which are shortly to be converted, for $1.71 yesterday.




Bugger missed that one McLovin, were the notes converted 1:1?

Anyway another nice little milestone for this portfolio today my third position to double in price.

So the first parcel was picked up at a little over $0.90 and the second averaged down at a bit under $0.80



robusta said:


> 1660 xIPP           @ $0.915        = $1538.85         14/11/12
> 
> 1910  x IPP          @ $0.785       = $1519.30          22/04/13




I looked long and hard at averaging down more as the priced continued to fall but decided a bit over $3000 was enough of a risk on the only position that doesn't make a profit - yet.

Here is a 12 month chart.


----------



## skc

McLovin said:


> You could have gotten the notes, which are shortly to be converted, for $1.71 yesterday.




The notes don't carry the dividend so it is always going to trade 5c+franking below the headstock. There was perhaps 1-2c benefit.


----------



## robusta

*Portfolio Review*

Instead of showing the ducks feet of the portfolio I thought I might try a few more words this time.

So I owe the bank $27,570.57 the weekly 'investment plan' now adds up to $5825.00, the current market value is $44,596.42. If you want to flip that around $5825.00 invested has yielded equity of $17025.85 in a bit over two years.

Sort of makes me smile when I think of comments earlier in this thread like "if what you are doing isn't working, why keep doing it?" and "you have lost all your money". I couldn't argue with the latter comment, there was a lot of red ink there for a while and there could be again.

The interest paid to the bank in the past final year was a few hundred dollars more than the dividends received. This current year should see that number finally become positive. When more profits were taken on M2 Telecommunications the capital gains number finally turned green . Maybe profits have been taken a little early on a few businesses but not a bad comeback from being about $6000.00 in the red at one stage. With a capital gain of only $280.17 and equity of  $17025.85 there must be a fair bit still at risk in the market so we had better review the holdings.

COH - Cochlear, current market value of $5365.44 up 18.22% on purchase price and 12.03% of the portfolio.
This is the business that is causing the most consternation at the moment. The initial entry point was lucky, almost at the low point after Cochlear's recall and even then for a normal security too much was paid. Later more were picked up for a bit over $56.00 after the price had fallen from $80.00 plus. 

Cochlear is in the portfolio because of their sustainable competitive advantage, recent results are starting to show that moat may be slowly starting to erode. It is difficult to ascertain if this is short term or more lasting in nature. The trouble with this type of 'slow trading' is by the time I come up with my decision the answer will probably be clear to the rest of the market.  COH has been a core holding for a couple of years, there could be a lesson to be learnt here on paying for growth.

DTL - Data#3, current market value of $4601.15, up $16.2% on purchase price and 10.32% of the portfolio.
Not much to think about the business, the dividends and cash flow both cover my cost of capital. Things have been tough in this sector but Data#3 has a rock solid balance sheet, nice reoccurring revenue and the hope of some growth in the future.

EZL - Euroz Securities, current market value of $1666.16, up 10.37 on purchase price and 3.74% of portfolio.
It is difficult to see a catalyst for these shares to shoot the lights out, but I like the way management handle capital and this gives confidence of a positive return in the long run. 

HHL - Hunter Hall Limited, current market value of $5327.70 down 23.42% on purchase price and 11.95% of the portfolio.
Hunter Hall's flagship fund is the top performer since inception in 1994, the recent performance however has been poor, this sort of period is not unusual for value investors. The thesis is when investment performance improves the funds under management will increase with some nice leverage on earnings. While waiting the dividend yield more than covers the interest payments.

IMF- IMF Australia, current market value of $1466.01 down 3.47% and 3.74% of the portfolio.
The most recent addition, I look forward to some nice cash flows.

IPP- Iproperty, current market value of $7140.00 up 133.47% on purchase price and 16.01% of the portfolio.
This is the only holding that does not make money, they are however trying to build the same sort of network as realestate.com (REA) but in SE Asia. There does seem to be a lot of blue sky priced into these shares. IPP seems to have a competitive advantage in Malaysia and Indonesia. They are showing good results on Hong Kong and Singapore as well, things should be interesting in the future.

MTU- M2 Telecommunications, current market value of $3950.10 up 137.94% on purchase price and 8.86% of the portfolio.
MTU seems to me to be priced to perfection, profits have been taken twice on this position. To those that look at things that way this holding is free carry. Having said that the dividend yield is fantastic and just because it is priced to perfection who am I to say that perfection will not be achieved in the future? The income is nice and there may be more upside to come.

NVT- Navitas, current market value of $6301.68 up 108.85 on purchase price and 14.13% of the portfolio.
NVT looks like it may be a keeper, fantastic cash flow, nice dividend yield, sustainable competitive advantage and maybe growth.

SRX- Sirtex Medical, current market value of $1903.50 up 28.53 on purchase price and 4.27% of the portfolio.
There I go again looking for growth and overseas earnings. The worry with this business is the growth is somewhat tied to the clinical results to be released late next year. This risk has kept the position size small.

TGA- Thorn Group, current market value $6874.68 up 51.63% on purchase price and 15.42% of the portfolio.
Another keeper, it is very rare to find a solid business like this at a reasonable price. I can see no reason not to hold, collect the steadily increasing dividends and wait.


There really is nothing I can see worth buying at the moment, as the market rises the bias is more towards taking risk of the table. While I think about it the dividends will continue to be paid and I will keep on throwing $75.00 a week at the loan and the share prices will fluctuate.


----------



## kermit345

Robusta, great to see what you've achieved since starting this thread. Your journey is very similar to my own which i'll explain briefly below but just wanted to say congrats on what you've achieved. Also great to see some solid winners in your portfolio with only HHL being the major loser.

I started working in the financial planning industry almost 5 years ago now, was always interested in shares and took more of an interest with the research and newsletters I had access to via my job. As this was during the very depths of the GFC my first purchase was WESN on 5/2/2009 borrowing $1,800 from my parents to purchase them at a price of $14.94. To this day I still hold them with a tidy paper profit and re-invested dividends that have almost covered my original cost given my yield on original investment is around 11% now. Aaaanyhow from there I repaid my parents, continued to save and purchase more shares along the way eventually buying a further $10,000 worth of shares with a combination of my own savings and borrowing more from my parents. Some of these stocks were penny dreadfuls along with WBC, WPL, QBE, ORG etc etc most of which I still own. This is where the first lessons started to sink in.

As I repaid my parents and had made reasonable paper profit on my portfolio I started using a margin loan and quickly ran it up to having a $30,000 loan buying various stocks or adding to those I already owned like WBC, WPL, QBE etc. However the microcaps I purchased in those first few years are where I started to sustain losses, all taken from various newsletters or my own poor research and basing the investment decisions on fluff from MD's etc from these companies. So while i've lost some paper money on some of those stocks, it was certainly a lesson learnt.

Since first putting the margin loan in place i've continued to repay $300 a fortnight from it for a number of years now and whenever the loan decreases below $30,000 I start looking for something else to purchase. Learning from my mistakes has lead to me making smarter decisions regarding the fundamentals of companies and my own research in recent times, purchasing stocks such as CGF, TGA, adding to WBC at $27 as recently as May this year and HSN. I've been fortunate enough to watch my portfolio swell over the last 12 months as has the whole market. The goal for my share purchases was to eventually build a deposit for a home purchase which is definitely the case now. Until such time i'll continue to pay off $300 a fortnight and look for further opportunities but agree with Robusta that its very slim pickings at the moment for a fundamentals approach.

Anyway not to hijack the thread but just wanted to congratulate you on your path and share my very similar journey. All the best for the future of your portfolio and this thread.


----------



## tech/a

*but agree with Robusta that its very slim pickings at the moment for a fundamentals approach.*

For any approach.

The markets world wide are pretty well directionless.
Very little is sustaining a meaningful move.


----------



## VSntchr

tech/a said:


> *but agree with Robusta that its very slim pickings at the moment for a fundamentals approach.*
> 
> For any approach.
> 
> The markets world wide are pretty well directionless.
> Very little is sustaining a meaningful move.




While a lot that I watch have gone up to and some cases over the value I believe they are worth - I still have a few opportunities demanding my capital from a fundamental point of view..


----------



## kermit345

tech/a said:


> *but agree with Robusta that its very slim pickings at the moment for a fundamentals approach.*
> 
> For any approach.
> 
> The markets world wide are pretty well directionless.
> Very little is sustaining a meaningful move.




Certainly agree with the above. Looking at the Aussie market it's almost like now that we've reached 5,300 on the index the market is unsure on where we go now. Also i'm not sure if earnings have caught up to the large growth over the last 12 months. While P/E is a relatively simple and sometimes overly-simple indicator you'd have to think on a P/E basis the part is very close to fully priced at the moment.

In addition to this some of the research I see come across my desk there are very little full Buy recommendations from brokers and research agencies unless your a gold miner. Gold miners seem to be the only recommended buys at the moment given the shake up in the gold price over the last 12-18 months.

Anyway won't go much further then that but certainly agree with your sentiments Tech/a.


----------



## robusta

kermit345 said:


> As I repaid my parents and had made reasonable paper profit on my portfolio I started using a margin loan and quickly ran it up to having a $30,000 loan buying various stocks or adding to those I already owned like WBC, WPL, QBE etc. However the microcaps I purchased in those first few years are where I started to sustain losses, all taken from various newsletters or my own poor research and basing the investment decisions on fluff from MD's etc from these companies. So while i've lost some paper money on some of those stocks, it was certainly a lesson learnt.




Money is a funny thing some people can not endure a period of losses like we have both been through. I'm not sure on your perspective but the losses sustained I consider to be money well spent. They tightened up my stock selection and portfolio management these lessons should pay me back over a long period.



kermit345 said:


> Since first putting the margin loan in place i've continued to repay $300 a fortnight from it for a number of years now and whenever the loan decreases below $30,000 I start looking for something else to purchase. Learning from my mistakes has lead to me making smarter decisions regarding the fundamentals of companies and my own research in recent times, purchasing stocks such as CGF, TGA, adding to WBC at $27 as recently as May this year and HSN. I've been fortunate enough to watch my portfolio swell over the last 12 months as has the whole market. The goal for my share purchases was to eventually build a deposit for a home purchase which is definitely the case now. Until such time i'll continue to pay off $300 a fortnight and look for further opportunities but agree with Robusta that its very slim pickings at the moment for a fundamentals approach.




Good on you with the leverage the way I think about it is to treat it like fire. It can be a great servant but a terrible master if allowed to get out of control.



kermit345 said:


> Anyway not to hijack the thread but just wanted to congratulate you on your path and share my very similar journey. All the best for the future of your portfolio and this thread.




Thank you I must admit to being a little envious the prices paid for a few of your holdings bought in 2008 that must have taken some conviction to invest in the middle of all the doom and gloom.


----------



## robusta

VSntchr said:


> While a lot that I watch have gone up to and some cases over the value I believe they are worth - I still have a few opportunities demanding my capital from a fundamental point of view..




That is fantastic VSntchr. From my point of view however the more the market (and hopefully my portfolio) rises the more nervous I become with the amount of leverage used, this is motivating me to be as conservative as possible.

The other consideration is it is difficult to believe the volatility we have had over the last few years will not return at some point. The trade off seems to me to try to keep a significant exposure to the market so as to participate in a possible bull market while having sufficient funds available to take advantage of any price weakness.


----------



## robusta

*Investment Sold*

They say you shouldn't get too attached to your shareholdings but I may have become close with this one. This business was considered a core holding being the dominant market leader with a competitive advantage and good growth prospects. Now i'm not so sure COH seem to have stumbled while their competitors have moved forward.

The first parcel was picked up in late 2011


robusta said:


> 65       x COH     @   $45.85    =    $3000.20        30/09/11



While the second a few months ago.                                                                                                                              


robusta said:


> 27 x COH            @ $56.23         = $1538.15        03/06/2013




A total of $4538.35 invested in this company.

Over the holding period $357.33 has been received in dividends.

Today 92 shares were sold @ $58.09 for $5327.33 a total gain of a little over 25.25% the other little positive is the lions share of the $788.98 capital gain will get the 50% CGT discount.

The overall investment strategy seem to be going to plan, as the market rises and businesses change profits are taken and leverage is reduced. To put it another way if the market rises I'm happy as there is still significant exposure, if the market falls (or a individual opportunity presents itself) still happy as there is capital available to take advantage of the situation.


----------



## robusta

*Investment Increased*

Navitas

Bought 266 @ $5.63 = $1517.53  30/10/13

Probably seems strange after talking about taking risk off the table then buying a business with a p/e this high... anyway I think this is a high quality business that will grow earnings well into the future, so happy to top up on the dips.


----------



## Klogg

robusta said:


> Probably seems strange after talking about taking risk off the table then buying a business with a p/e this high... anyway I think this is a high quality business that will grow earnings well into the future, so happy to top up on the dips.




To be honest, this one doesn't make sense to me... (although I missed the investment initially, so I'm definitely slow on this one).

But a P/E of ~26 just doesn't compute, not unless it was some sort of asset/liquidation play, or it had temporarily depressed earnings (i.e. asset write-offs, one-off costs)
Is there any additional reason to this, or purely the quality of the business?


----------



## robusta

Klogg said:


> To be honest, this one doesn't make sense to me... (although I missed the investment initially, so I'm definitely slow on this one).
> 
> But a P/E of ~26 just doesn't compute, not unless it was some sort of asset/liquidation play, or it had temporarily depressed earnings (i.e. asset write-offs, one-off costs)
> Is there any additional reason to this, or purely the quality of the business?




No it's mostly the quality of the business. NVT should grow earnings in the mid teens over a large number of years while spinning off a whole heap of free cash flow.

It is a difficult to justify buying at this price however, I think I may be guilty of a impulse buy. The cash was sitting in the broker account, the price was falling... Better go back to the strategy and get back to building the war chest for future opportunities with a margin of safety.

Not sure if this is justification after the fact but this excellent business is now a larger percentage of the portfolio and the average cost is about $3.52 per share.


----------



## galumay

robusta said:


> It is a difficult to justify buying at this price however, I think I may be guilty of a impulse buy. ....




I had another look at NVT after they had that recent repricing, I came to the conclusion that about $4.50 would be roughly my entry point. I just cannot see the future growth to support a PE like that.

It remains on my watch list but too expensive for my tastes!


----------



## RottenValue

$3.50 is about what price I would buy it at so at least your average price looks good.

Hard to justify a PE of 25+ for a company that has only added 1 cent (18.77 to 19.87) to its EPS in 3 years.  Is increasing revenue and cashflow but not profits.


----------



## robusta

*New Investment*

FGE - Forge Group

Well actually I've held this business in the portfolio before selling in late November 2011 a bit over two years ago.


robusta said:


> *INVESTMENT SOLD*Sold 676 x FGE @ $4.53 Hopefully the funds invested in FGE can be reinvested back into FGE or a similar company at a much more attractive price sometime in the future.




At the time the portfolio was heavily into the red and there was more pain to come from another cyclical business called Martix - MCE, and the turnover was horrendous for my chosen investment strategy, so this comment from skc was completely justified and hit a nerve. 



skc said:


> Robusta... so you are now trading? You think FGE will fall further and want to buy back in lower... What happened to long term investing? What's your average holding period on closed positions? 2 months?
> 
> You need better planning and discipline in both entries and exits. Write down your investment plan with actionable, measurable, quantitative steps and look at it before you buy and sell. Do that until it becomes "intrinsic" to you. Get the process right first and worry about the methodology and returns later.




There was nothing I could argue against in skc's post both the returns and adherence to the strategy looked terrible back then. In the end today the next trade in FGE was executed.

Bought 3030 x FGE @ $0.66 = $2019.75

The share price has been hammered today due to the extraordinary long trading halt after the losses incurred by the CTEC business.  When FGE bought CTEC in January 2012 at a really low multiple, somewhere around 3-4 x EBIT it seemed too good to be true. I wonder how long the sellers knew this time bomb was ticking away... You know what they say. "if it seems too good to be true it probably is."

The result from buying today will be fairly binary, either the business returns to profitability and there will be lots of capital gains and dividends to come or they will not and money will be lost. The one certainty is cyclical businesses will never again be such a large percentage of my portfolio.


----------



## robusta

*New Investment*

QBE Insurance Group

Bought 183 @ $10.93 = $2020.14 10/12/13

If you look at the NTA somewhere in the $4.20s per share and a ROE well under 10 on the surface this seems to be a ordinary investment and on closer inspection it may well be very ordinary. QBE does however have a nice history of recording a underwriting profit. The float may be able to take advantage of higher bond yields in the future while a lower A$ may also boost profits.


----------



## Klogg

robusta said:


> *New Investment*
> 
> QBE Insurance Group
> 
> Bought 183 @ $10.93 = $2020.14 10/12/13
> 
> If you look at the NTA somewhere in the $4.20s per share and a ROE well under 10 on the surface this seems to be a ordinary investment and on closer inspection it may well be very ordinary. QBE does however have a nice history of recording a underwriting profit. The float may be able to take advantage of higher bond yields in the future while a lower A$ may also boost profits.




I've taken a look at this and threw it into the too hard basket...

May I ask - how did you come up with a valuation, even if it's a wide-ranging one?


----------



## Valued

robusta said:


> *New Investment*
> 
> QBE Insurance Group
> 
> Bought 183 @ $10.93 = $2020.14 10/12/13
> 
> If you look at the NTA somewhere in the $4.20s per share and a ROE well under 10 on the surface this seems to be a ordinary investment and on closer inspection it may well be very ordinary. QBE does however have a nice history of recording a underwriting profit. The float may be able to take advantage of higher bond yields in the future while a lower A$ may also boost profits.




I had a brief look at QBE. It would probably take me three hours to actually value the company. You would really need to concentrate on forecasted intrinsic value over the next couple of years. I would work it out for 2011, 2012, 2013, 2014, 2015 and track the change in intrinsic value. Now I could have spent time doing this except I considered it a waste of time for the following reasons:

1. Earnings consistently dropping for the last five years. Management said revenue for NA will be down next year so we may expect earnings will be less than stellar in FY2014 as well. Overall profit is also lagging behind previous results.
2. The company has consistently issued more and more shares raising more capital since it was listed in 2003, diluting shareholder wealth and reducing overall returns.
3. Return on Equity has been plummeting 
4. Book value has decreased year on year for four years

After considering this I figured I couldn't be bothered valuing it unless it drops drastically low. If the price hit $6 I would take a second look.


----------



## robusta

Klogg said:


> I've taken a look at this and threw it into the too hard basket...
> 
> May I ask - how did you come up with a valuation, even if it's a wide-ranging one?




The honest truth is I didn't value it. Held some QBE a couple of years ago, made a small profit, lost confidence and took a small profit. Watching the price go from eleven dollars something to seventeen dollars something had me thinking I sold too early, anyway the price fell below eleven dollars recently so I bought some and then looked at the numbers. Not exactly sticking to the strategy.

*Investment sold*

183 x QBE @ $11.20 = $2029.65, a capital gain a touch over $9.00





Valued said:


> I had a brief look at QBE. It would probably take me three hours to actually value the company. You would really need to concentrate on forecasted intrinsic value over the next couple of years. I would work it out for 2011, 2012, 2013, 2014, 2015 and track the change in intrinsic value. Now I could have spent time doing this except I considered it a waste of time for the following reasons:
> 
> 1. Earnings consistently dropping for the last five years. Management said revenue for NA will be down next year so we may expect earnings will be less than stellar in FY2014 as well. Overall profit is also lagging behind previous results.
> 2. The company has consistently issued more and more shares raising more capital since it was listed in 2003, diluting shareholder wealth and reducing overall returns.
> 3. Return on Equity has been plummeting
> 4. Book value has decreased year on year for four years
> 
> After considering this I figured I couldn't be bothered valuing it unless it drops drastically low. If the price hit $6 I would take a second look.




After being seduced by overseas income and rising bond yields in the cold light of day I tend to agree with Valued.   Priced around NTA, QBE would make a much more attractive investment.

http://www.investopedia.com/articles/investing/082813/how-value-insurance-company.asp

I should have reread this before buying.


----------



## robusta

*Investment Increased*

IMF - Bentham IMF Limited

Bought 877 @ $1.71 = $1519.62 16/12/13

Here is my post from early October this year. Nothing much has changed except they have Won a couple of cases and the share price has fallen a little.




robusta said:


> *New Investment*
> 
> IMF Australia Limited
> 
> Bought 819 IMF @ $1.83 = 1518.72 3/10/2013
> 
> This business has a fantastic record of excellent returns on capital deployed. The competitive advantage seem to me the ability to pick cases with a decent chance of a return and the feedback of the better cases being offered to IMF. The advantages of earnings not being tied to the economic cycle and the chance of growing foreign currency revenues are also attractive.
> 
> There has been many chances to pick up these shares at lower prices in the last couple of years. I have been watching this business for a while but have never had a chance to fit some into the portfolio. While the shares are not overly cheap there should be some upside on this small position given a long enough time frame.


----------



## robusta

*Investment Increased*

Bought 1613 x DTL @ $0.93 = $1520.04  20/12/13

Profit downgrade today, following UXC the other day.

http://www.asx.com.au/asxpdf/20131220/pdf/42lrn2dbj90h2p.pdf

Seems conditions are still tough in this sector, however with nice recurring revenues and no debt I was happy to top up my holding at $0.93 today and collect the 7% plus dividend yield.


----------



## robusta

So late November I picked up some FGE shares




robusta said:


> *New Investment*
> 
> FGE - Forge Group
> 
> 
> Bought 3030 x FGE @ $0.66 = $2019.75
> 
> The share price has been hammered today due to the extraordinary long trading halt after the losses incurred by the CTEC business.  When FGE bought CTEC in January 2012 at a really low multiple, somewhere around 3-4 x EBIT it seemed too good to be true. I wonder how long the sellers knew this time bomb was ticking away... You know what they say. "if it seems too good to be true it probably is."
> 
> The result from buying today will be fairly binary, either the business returns to profitability and there will be lots of capital gains and dividends to come or they will not and money will be lost. The one certainty is cyclical businesses will never again be such a large percentage of my portfolio.




*Investment Sold*

3030 x FGE @ $0.95= $2858.55

Nice little capital gain and some risk taken off the table. What more can I say?


----------



## robusta

*New Investment*

WDIV - SPDR S&P Global Dividend Fund

Bought 128 x WDIV @ $15.83 = $2046.19

Seems a bit strange for a stock picker with a concentrated portfolio like mine to be buying a ETF. This one is a little different however.

http://www.spdr.com.au/etf/fund/fund_detail_WDIV.html#

WDIV with a MER of 0.5% follows the S&P Global Dividend Aristocrats Index. To be included in the index a business has to have at least 10 years of increasing or stable dividends with a weighting towards the highest yield.

Here you can see the top holdings, sector allocations and country weighting.

http://www.spdr.com.au/etf/fund/fund_detail_WDIV.html#

I am considering participating in the DRP.


----------



## tech/a

robusta said:


> So late November I picked up some FGE shares
> 
> 
> 
> 
> *Investment Sold*
> 
> 3030 x FGE @ $0.95= $2858.55
> 
> Nice little capital gain and some risk taken off the table. What more can I say?




Wow
Missed 40% in a few days!
Why dd you sell
It's still 25% higher than when you sold!


----------



## robusta

tech/a said:


> Wow
> Missed 40% in a few days!
> Why dd you sell
> It's still 25% higher than when you sold!




Yep I'm a terrible trader, the came out with a reply to the price enquiry like Sargent Schults "I know nothing" so I believed them and sold. 

Next thing they are awarded a increased contract and Blackrock emerge as a substantial holder.

http://www.smh.com.au/business/blac...e-group-share-price-rally-20140103-309oh.html

So to sum up sold early but also bought early.


----------



## tech/a

robusta said:


> Yep I'm a terrible trader, the came out with a reply to the price enquiry like Sargent Schults "I know nothing" so I believed them and sold.
> Next thing they are awarded a increased contract and Blackrock emerge as a substantial holder.
> 
> http://www.smh.com.au/business/blac...e-group-share-price-rally-20140103-309oh.html
> So to sum up sold early but also bought early.




Sarcasm an excellent trait.

I see many reasons in your trades for entries.
Not the same for exits.
COH another


----------



## burglar

tech/a said:


> Sarcasm an excellent trait.
> 
> I see many reasons in your trades for entries.
> Not the same for exits.
> COH another




I have learnt that I would do much much better if I run my winners.
I just need to do what I learnt.


----------



## robusta

tech/a said:


> Sarcasm an excellent trait.




Sarcasm never seems to work for me on this forum, when I try it people take me seriously, and sometimes like this when I'm serious people think I,m being sarcastic.

I am a terrible short term trader, never look at resistance and trends and very rarely take volume into account.



tech/a said:


> I see many reasons in your trades for entries.
> Not the same for exits.
> COH another




You are right Tech, having a main goal of buying excellent businesses to hold for the long term most exits mean I have made a mistake in the initial buying process.

FGE was bought $0.66 straight after the trading halt was lifted with the view that if they survived there should be significant upside. The price spike from $0.66 to $0.95 within a month was enough to convince me to take some risk off the table, a risk I probably shouldn't have taken anyway.

As for COH




robusta said:


> COH - Cochlear, current market value of $5365.44 up 18.22% on purchase price and 12.03% of the portfolio.
> This is the business that is causing the most consternation at the moment. The initial entry point was lucky, almost at the low point after Cochlear's recall and even then for a normal security too much was paid. Later more were picked up for a bit over $56.00 after the price had fallen from $80.00 plus.
> 
> Cochlear is in the portfolio because of their sustainable competitive advantage, recent results are starting to show that moat may be slowly starting to erode. It is difficult to ascertain if this is short term or more lasting in nature. The trouble with this type of 'slow trading' is by the time I come up with my decision the answer will probably be clear to the rest of the market.  COH has been a core holding for a couple of years, there could be a lesson to be learnt here on paying for growth.






robusta said:


> *Investment Sold*
> 
> They say you shouldn't get too attached to your shareholdings but I may have become close with this one. This business was considered a core holding being the dominant market leader with a competitive advantage and good growth prospects. Now i'm not so sure. COH seem to have stumbled while their competitors have moved forward.
> 
> The first parcel was picked up in late 2011
> 
> While the second a few months ago.
> 
> 
> A total of $4538.35 invested in this company.
> 
> Over the holding period $357.33 has been received in dividends.
> 
> Today 92 shares were sold @ $58.09 for $5327.33 a total gain of a little over 25.25% the other little positive is the lions share of the $788.98 capital gain will get the 50% CGT discount.
> 
> The overall investment strategy seems to be going to plan, as the market rises and businesses change profits are taken and leverage is reduced. To put it another way if the market rises I'm happy as there is still significant exposure, if the market falls (or a individual opportunity presents itself) still happy as there is capital available to take advantage of the situation.


----------



## robusta

*Investment Sold*

DTL Data 3 Limited

Sold 5614 Shares @ $0.92 = $5144.93

Have held this business for a long time and even topped up on the recent profit downgrade. The main reason for selling is a loss of confidence that profits will be maintained let alone grow in the long term. Hardware sales seem to be in decline.


----------



## tech/a

robusta said:


> *Investment Sold*
> 
> DTL Data 3 Limited
> 
> Sold 5614 Shares @ $0.92 = $5144.93
> 
> Have held this business for a long time and even topped up on the recent profit downgrade. The main reason for selling is a loss of confidence that profits will be maintained let alone grow in the long term. Hardware sales seem to be in decline.




Building Approvals are up.
I'm buying heaps in the Hardware field!
Hmm I don't know??


----------



## slooi1

robusta said:


> *Investment Sold*
> 
> DTL Data 3 Limited
> 
> Sold 5614 Shares @ $0.92 = $5144.93
> 
> Have held this business for a long time and even topped up on the recent profit downgrade. The main reason for selling is a loss of confidence that profits will be maintained let alone grow in the long term. Hardware sales seem to be in decline.




Robusta,
A quote from you on 20/12/2013 after purchasing DTL.


robusta said:


> Seems conditions are still tough in this sector, however with nice recurring revenues and no debt I was happy to top up my holding at $0.93 today and collect the 7% plus dividend yield.




Can you provide a sense of what's changed your view in the 3-4 weeks over Christmas to sell DTL? There hasn't been much official news come out in general given that most decision makers etc are on holidays.

Your views in this thread appear to flip flop between fundamental analysis and short term trading. My guess is that you're not sure on your style yet, or that emotion (fear/greed) is playing a part. If you're uncertain on your style - that will bite you later on. Remember, you can always take a pass and don't buy in.


----------



## ENP

robusta said:


> *Investment sold*
> 
> 183 x QBE @ $11.20 = $2029.65, a capital gain a touch over $9.00




What's the point in all the effort for $9?

Is that before or after the costs of brokerage?


----------



## robusta

slooi1 said:


> Robusta,
> A quote from you on 20/12/2013 after purchasing DTL.
> 
> 
> Can you provide a sense of what's changed your view in the 3-4 weeks over Christmas to sell DTL? There hasn't been much official news come out in general given that most decision makers etc are on holidays.




Nothing in the announcements or news, I was just thinking about the hardware side of the business. The old model of a heap of main frames, desk tops throughout and software loaded on each device does not seem to be growing...



slooi1 said:


> Your views in this thread appear to flip flop between fundamental analysis and short term trading. My guess is that you're not sure on your style yet, or that emotion (fear/greed) is playing a part. If you're uncertain on your style - that will bite you later on. Remember, you can always take a pass and don't buy in.




Yes I agree, still refining my style. The first parcel of DTL was bought in May 2012 over a year and a half ago. I'm not sure I've expressed many view on short term trading but agree buying and selling mistakes have been made and there has been too much flip flopping in and out of stocks.



ENP said:


> What's the point in all the effort for $9?
> 
> Is that before or after the costs of brokerage?




After brokerage and now worth the effort. Too little thought given to the buy decision.


----------



## robusta

*New Investment*

TRS - The Reject Shop

Bought 175 @ $11.50 = $2032.45

Here I go again, buy now think later.

TRS has been on my watch list for a long time. Have been on holidays, came in off the kayak and discovered the sp had plunged, so picked up a small parcel. Will have to see if there is any growth left in TRS.


----------



## tinhat

robusta said:


> *New Investment*
> 
> Will have to see if there is any growth left in TRS.




With a PE of 20.5 you're betting on it!


----------



## robusta

This from me selling FGE at $0.95 after buying at $0.66



tech/a said:


> Wow
> Missed 40% in a few days!
> Why dd you sell
> It's still 25% higher than when you sold!




Now it is $0.63 I'm glad to be out of it and probably shouldn't have bought in the first place despite the profit.



burglar said:


> I have learnt that I would do much much better if I run my winners.
> I just need to do what I learnt.




Yes it is difficult I guess the trick is picking the stocks to hold on to. I got this terribly wrong with CCP and KAM.

Here is one I got right... so far. Normally I update the holdings on the anniversary of the first purchase, somehow I missed this one.

So when I bought IPP back in Nov 2012 it was and still is the only holding not making a profit. The thesis was massive growth and increasing revenue.


robusta said:


> 1660 xIPP           @ $0.915        = $1538.85         14/11/12




The price fell so I picked up some more.




robusta said:


> 1910  x IPP          @ $0.785       = $1519.30          22/04/13




So that is a average price of $0.8566 per share

After that the price fell to $0.70 and I considered buying some more but did not pull the trigger, not wanting to take on more risk.

Recently IPP have announced their first cash flow positive quarter.


----------



## So_Cynical

robusta said:


> Here is one I got right... so far. Normally I update the holdings on the anniversary of the first purchase, somehow I missed this one.
> 
> So when I bought IPP back in Nov 2012 it was and still is the only holding not making a profit. The thesis was massive growth and increasing revenue.
> 
> 
> The price fell so I picked up some more.So that is a average price of $0.8566 per share
> 
> After that the price fell to $0.70 and I considered buying some more but did not pull the trigger, not wanting to take on more risk.




This is considered such a no no, and yet on almost every stock that i have made more than 100% on, i have bought more when the price fell further...very few of us speak of this and very very few of us post it live.  it can take a while and its not sexy, but triple digit profits are triple digit profits.


----------



## tech/a

So_Cynical said:


> This is considered such a no no, and yet on almost every stock that i have made more than 100% on, i have bought more when the price fell further...very few of us speak of this and very very few of us post it live.  it can take a while and its not sexy, but triple digit profits are triple digit profits.




Luck.
If it was skill you'd be at the bottom first time.

I'll also bet this is where you'll find your biggest losses
Or more to the point-----longest bottom draw trades.
Youve not made a loss until you sell at a loss----RIGHT


----------



## CanOz

tech/a said:


> Luck.
> If it was skill you'd be at the bottom first time.
> 
> I'll also bet this is where you'll find your biggest losses
> Or more to the point-----longest bottom draw trades.
> Youve not made a loss until you sell at a loss----RIGHT




I agree that you should not average into losing trades in equities...., however SC has made some pretty good ones because he had the gonads to hang on and the equities were good enough to shake off the bear trend. 

It does make me wonder though what happens when an HHI or KZL happens along. However, if he has his risk spread around and most are good companies then there is something to be said for a contrarian strategy like this. The proof is in the profit and he has shown that, has he not?.


----------



## So_Cynical

tech/a said:


> Luck.
> If it was skill you'd be at the bottom first time.




Buying the bottom is ALWAYS luck, never though about the skill aspect and thinking about it i don't think skill plays any part, its a calculated decision.



tech/a said:


> longest bottom draw trades.
> You've not made a loss until you sell at a loss----RIGHT




I only have the one draw, when you enter with no time frame you don't need one...and selling at a loss should always be avoided, hard to make money by losing money.


----------



## tech/a

Sure you'll get the odd one that works

But for balance I've not seen anyone Spruking
Up the 6 trades they are locked into loss after averaging
In 3 x and still 50% down on the initial buy even after
Averaging down.


----------



## So_Cynical

tech/a said:


> Sure you'll get the odd one that works




In my experience its not the odd one that works its the odd one that fails.



CanOz said:


> SC has made some pretty good ones because he had the gonads to hang on and the equities were good enough to shake off the bear trend.
> 
> It does make me wonder though what happens when an HHI or KZL happens along. However, if he has his risk spread around and most are good companies then there is something to be said for a contrarian strategy like this. The proof is in the profit




5 year average of around 15% ~ was going along at 18% but 12/13 was a slow year due to a withdrawal of funds for a RE purchase and the overhang from that will slow 13/14 returns as well.


----------



## tech/a

Well done then.
Perhaps I need to look at the way I trade.
Your win rate is by absolute miles the best I've seen from anyone who has quoted a win rate anywhere on the planet.
Over 80%

To have returned only 15-18% beggars belief.
Those 21 losses must be substantial.

Perhaps you should try it with Futs!


----------



## Ves

robusta said:


> Recently IPP have announced their first cash flow positive quarter.



I saw that, looks pretty exciting.  Also remember I grilled you a bit on this one when you first bought it  -  bit too risky for me,  too many "what ifs",  but it didn't discourage you and you stuck you your guns.  Going pretty well for you.  Well done.


----------



## robusta

So_Cynical said:


> This is considered such a no no, and yet on almost every stock that i have made more than 100% on, i have bought more when the price fell further...very few of us speak of this and very very few of us post it live.  it can take a while and its not sexy, but triple digit profits are triple digit profits.




You have been very successful at it and like me you have a entry criteria. With the right stock's why not buy more when the price is cheaper?



tech/a said:


> Luck.
> If it was skill you'd be at the bottom first time.




Who can find the bottom first time with any consistency? Cheap enough for a decent long term return is cheap enough for a decent long term return. Picking the bottom is luck.



tech/a said:


> I'll also bet this is where you'll find your biggest losses
> Or more to the point-----longest bottom draw trades.
> Youve not made a loss until you sell at a loss----RIGHT




Can't speak for So_cynical but none of my holdings are in the bottom drawer, and like So_cynical including open positions my portfolio is doing OK.



CanOz said:


> I agree that you should not average into losing trades in equities...., however SC has made some pretty good ones because he had the gonads to hang on and the equities were good enough to shake off the bear trend.
> 
> It does make me wonder though what happens when an HHI or KZL happens along. However, if he has his risk spread around and most are good companies then there is something to be said for a contrarian strategy like this. The proof is in the profit and he has shown that, has he not?.




True it is like they say let your profits run....



tech/a said:


> Sure you'll get the odd one that works
> 
> But for balance I've not seen anyone Spruking
> Up the 6 trades they are locked into loss after averaging
> In 3 x and still 50% down on the initial buy even after
> Averaging down.




No one would spruik it because too few have the stomach to follow this strategy. But it seems to work with the right stock selection and portfolio construction. Mind you would have to be VERY confident to average in 50% down.


----------



## robusta

Ves said:


> I saw that, looks pretty exciting.  Also remember I grilled you a bit on this one when you first bought it  -  bit too risky for me,  too many "what ifs",  but it didn't discourage you and you stuck you your guns.  Going pretty well for you.  Well done.




Well to tell you the truth IPP was almost too risky for me. It was a difficult decision to take a full sized position in something that wasn't making any money. Have made the wrong decision and paid up for future growth in the past but this one is working out so far.


----------



## robusta

*New Investment*

IAA - Ishares Asia 50 ETF

Bought 41 @ $49.00 = $2028.95 4/2/2013

http://au.ishares.com/fund/fund-overview-IAA-ASX.do

I know it is all bad news at the moment regarding currencies and growth but the region is still growing fast and long term I expect the Asian currencies to appreciate while A$ should depreciate. The two largest holdings Samsung and Taiwan Semiconductors are also attractive IMO. Like the other ETF in the fund (WDIV) I will participate in the DRP.


----------



## robusta

*Investment Increased*

Bentham IMF LTD

Bought 870 @ $1.72 = $1516.35

This brings the total holding to 2566 shares and elevates IMF to my fifth largest position. Truth be told I have no idea how the market will react to this morning's bank fees decision.

http://www.abc.net.au/news/2014-02-05/anz-bank-fees-class-action-maurice-blackburn/5238494

I do think however this business manages capital well and has many years of growth ahead.


----------



## robusta

*Investment Increased*

TGA - Thorn Group

Bought 762 @ $1.97 = $1521.09

This brings the total holding to 3657 shares at a average price of somewhere around $1.65 TGA is now my third largest holding behind IPP and NVT.


----------



## robusta

Another nice little milestone for the portfolio today. As at the close of trading the portfolio has a market value of $48700.15, I owe the bank (line of credit) $28568.99 so that is $20131.16 in equity. Not sure what the CAGR  is on the $7125.00 I have contributed over the last two and a half years. The most pleasing aspect to me is the dividends are now greater than the interest paid so things are starting to snowball now.

On a personal note please don't read this as me saying I'm a great investor. If I had to rate my trading decisions I would have to say performance has been below average to average at best. The strategy of buying the best businesses you can find at a reasonable price however will in my opinion outperform given enough time.


----------



## robusta

*New Investment* 

UOS - United Overseas Australia

Bought 2634 @ $0.535 = $1429.14 13/2/14

This is a REIT invested mainly in Malaysia, they have a good history of capital management, low debt and a nice little discount to NTA.


----------



## Ves

robusta said:


> *New Investment*
> 
> UOS - United Overseas Australia
> 
> Bought 2634 @ $0.535 = $1429.14 13/2/14
> 
> This is a REIT invested mainly in Malaysia, they have a good history of capital management, low debt and a nice little discount to NTA.



Interesting company.   Would you believe I've been watching it since May last year?   It intrigues me,  because on the surface it looks very cheap... but something so far has kept me out of it.   Very illiquid and tightly held,  so just be careful if you need to get out in a hurry. The clearest revaluation catalyst for this company would appear to be it being taken private by the parties who have majority interests in it.

The related company structure is a nice little web in itself.   Entities entwined together, so lots to think about.

Agree that it looks well managed,   management looks pretty open to questions from what I've read. The problem with this is that the company is so tightly held that no one asks them questions!

edit:  I won't claim to have found this one on my own,   someone asked me to have a look at the time.


----------



## So_Cynical

Ves said:


> Interesting company.   Would you believe I've been watching it since May last year?




I started watching in 2010 but have never got around to buying it..


----------



## KnowThePast

Ves said:


> Interesting company.   Would you believe I've been watching it since May last year?   It intrigues me,  because on the surface it looks very cheap... but something so far has kept me out of it.   Very illiquid and tightly held,  so just be careful if you need to get out in a hurry. The clearest revaluation catalyst for this company would appear to be it being taken private by the parties who have majority interests in it.
> 
> The related company structure is a nice little web in itself.   Entities entwined together, so lots to think about.
> 
> Agree that it looks well managed,   management looks pretty open to questions from what I've read. The problem with this is that the company is so tightly held that no one asks them questions!
> 
> edit:  I won't claim to have found this one on my own,   someone asked me to have a look at the time.




Been watches for ages as well!

There's an article somewhere on the internet that tries to break down all the estimates to come up with the correct figure of cash and asset values. It is a long article 

Price wise it looks very, very cheap, but I know so little about their market that I've never had the nerve to pull the trigger.


----------



## robusta

Ves said:


> Interesting company.   Would you believe I've been watching it since May last year?   It intrigues me,  because on the surface it looks very cheap... but something so far has kept me out of it.   Very illiquid and tightly held,  so just be careful if you need to get out in a hurry. The clearest revaluation catalyst for this company would appear to be it being taken private by the parties who have majority interests in it.
> 
> The related company structure is a nice little web in itself.   Entities entwined together, so lots to think about.
> 
> Agree that it looks well managed,   management looks pretty open to questions from what I've read. The problem with this is that the company is so tightly held that no one asks them questions!
> 
> edit:  I won't claim to have found this one on my own,   someone asked me to have a look at the time.




Thank you Ves, it is very tightly held and I'm still not sure I have my head completely around the related company structure. As for the lack of liquidity that is a risk I am prepared to take but only with a small position. This is under 3% of the portfolio at the moment.



KnowThePast said:


> Been watches for ages as well!
> 
> There's an article somewhere on the internet that tries to break down all the estimates to come up with the correct figure of cash and asset values. It is a long article
> 
> Price wise it looks very, very cheap, but I know so little about their market that I've never had the nerve to pull the trigger.




Same here I don't know much about the real estate market either and there is some talk of a bubble...

Had a little look but couldn't find that article I would be very interested in it.


----------



## Ves

robusta said:


> Had a little look but couldn't find that article I would be very interested in it.




I believe this is the article.

http://www.eternalgrowthpartners.com/node/168

All credit to eternalgrowth who posts a lot on this company over at Hotcopper.


----------



## Klogg

I know there was talk of a breakdown of the assets attributable to each of the subsidiaries and ultimately to the shareholders of UOS, but management deemed it too complex from memory.

On talks of a property bubble - I honestly think this company would love a pop in property. Labour would be cheaper and they have mountains of cash to start land banking.

There's one risk that no-one really mentions though - the founder and CEO is in his early 70s, so he's getting on in years... and I'm yet to hear of a succession plan.




> edit: I won't claim to have found this one on my own, someone asked me to have a look at the time.



Same for me - I found it as a result of the Eternal Growth fund also - started buying about 6 months ago.


----------



## robusta

Thank you for that Klogg, hopefully regarding the succession plans it will follow the pattern on the first generation founds the business, the second grows it while the third looses it.

Thank you for the reference to Eternal Growth partners they look really interesting. It would be good to have a look inside his portfolio. The returns are impressive.

I might copy a few of the above posts to the UOS thread so they are not so hidden on this ramble.


----------



## KnowThePast

Ves said:


> I believe this is the article.
> 
> http://www.eternalgrowthpartners.com/node/168
> 
> All credit to eternalgrowth who posts a lot on this company over at Hotcopper.




That's the one!

Thanks for correcting my laziness, Ves.


----------



## burglar

Forge in administration!?


----------



## robusta

burglar said:


> Forge in administration!?




Yep luckily I got out of it a while back, should never have been in FGE in the first place.


----------



## burglar

robusta said:


> Yep luckily I got out of it a while back, should never have been in FGE in the first place.




In my own funny way I was trying to say this:

Sorry, I was wrong! 

When you nipped out of Forge, I posted about running your winners.

Hindsight is a wonderful thing.


----------



## robusta

Sorry mate missed your post, you did hit a nerve about running my winners, I have sold way too many businesses early and have more often than not regretted the sell decision. 

With the 20/20 vision of hindsight, I was lucky to get out of FGE for a profit but stupid for being invested in the first place.

Now if only I can get my hands on a copy of The Australian Financial Review from say sometime in the year 2019


----------



## burglar

robusta said:


> ... Now if only I can get my hands on a copy of The Australian Financial Review from say sometime in the year 2019




Well said!


----------



## robusta

This may be a bit boring to some and I'm positive there are more than a few contributors on this forum giving a yawn and saying yeah yeah, I hold a few of those and some even better bit today notched up my first triple bagger 

IPP - Iproperty Group

So bought in two parcels;



robusta said:


> 1660 xIPP           @ $0.915        = $1538.85         14/11/12
> 
> 1910  x IPP          @ $0.785       = $1519.30          22/04/13




$3058.15 total invested including brokerage. At today's closing price of $2.76 the market is pricing my 3570 shares at $9853.20 a gain of 222.2%
Richie Beanaud would be proud.  http://www.youtube.com/watch?v=8CSiPHFOQSU

This is a better looking chart than the ones I draw, hope you don't mind piggybank




piggybank said:


> The company released their 2013 result today. It iProperty Group was profitable in 2013 as well as strong revenue growth and positive operating cash flow in Q4. The presentation can be viewed by clicking on the link below - enjoy.
> 
> http://stocknessmonster.com/news-item?S=IPP&E=ASX&N=782774
> 
> View attachment 56861​


----------



## craft

robusta said:


> today notched up my first triple bagger
> IPP - Iproperty Group




Well Done Robusta



robusta said:


> If I had to rate my trading decisions I would have to say performance has been below average to average at best. The strategy of buying the best businesses you can find at a reasonable price however will in my opinion outperform given enough time.




I would say an *A* for temperament. And that's the most important element.


----------



## burglar

burglar said:


> Didn't know what to make of this thread, but had some spare time on my hands.
> 
> It was an easy read.
> 
> All the while I expected the detractors and naysayers to appear.
> I guess you have parried them somehow!?
> 
> Just an observation if I may.
> 
> If any of your picks was to treble you would be looking good, would you not?




My post from two years ago!!


----------



## robusta

craft said:


> Well Done Robusta




Thank you that means a lot coming from you. I can't count how many times I have read one of your posts and thought, that says every thing I want to say plus a whole lot more I had never thought of and a whole lot more eloquently. 

Looking at the Present Value of Future Cash Flow, Long Term Investments, NVT, TGS, TRX, MTU, SMSF Returns and many other threads there are a lot of those moments when I've thought wow there is nothing I can add to that. 

Thanks again. 
Hope that wasn't too much but had to say it sooner or later.


----------



## robusta

burglar said:


> My post from two years ago!!




You are bloody Nostradamus!!!

Not sure how good I'm looking. Remember these are all paper profits at the moment, I won't count my chickens until a nice passive income is flowing in or large capital gains are taken. Hopefully both will happen in the future.


----------



## slooi1

robusta said:


> You are bloody Nostradamus!!!
> 
> Not sure how good I'm looking. Remember these are all paper profits at the moment, I won't count my chickens until a nice passive income is flowing in or large capital gains are taken. Hopefully both will happen in the future.




Robusta,
Good going on the triple bagger! Now, to resist selling just because it's gone up by a lot... 
Hope the profit season is good for you so far.

slooi1


----------



## craft

robusta said:


> Hope that wasn't too much but had to say it sooner or later.




Yep too much But thanks.

Its really the reader and not the writer that can take credit for what is taken on-board.

Most of my posts are really for my benefit as writing something's down seems to help me. If you got anything from reading them all credit to you.

ps.

I've got lots from reading your posts too, you often set the thought train a running for me.


----------



## robusta

craft said:


> Yep too much But thanks.




Gotta admit like most Aussies I'm not to keen on flowery compliments either. Anyway on to business.

On the day of the downgrade about a month ago I did this.



robusta said:


> *New Investment*
> 
> TRS - The Reject Shop
> 
> Bought 175 @ $11.50 = $2032.45
> 
> Here I go again, buy now think later.
> 
> TRS has been on my watch list for a long time. Have been on holidays, came in off the kayak and discovered the sp had plunged, so picked up a small parcel. Will have to see if there is any growth left in TRS.




*Investment Sold*

175 x TRS @ $10.5155 = $1820.27

A capital loss of $212.18

Nothing much has changed since the purchase date, the h/y report was about what I expected and it would not surprise to see this business growing well into the future. The bottom line is I'm was fully invested and reckon there will be better opportunities out there. TRS just seemed like the weakest link in the portfolio.


----------



## robusta

*Investment Increased*

A couple of weeks ago established this position.



robusta said:


> *New Investment*
> 
> UOS - United Overseas Australia
> 
> Bought 2634 @ $0.535 = $1429.14 13/2/14
> 
> This is a REIT invested mainly in Malaysia, they have a good history of capital management, low debt and a nice little discount to NTA.




Today after a bit more research aided by a helpful link from some ASF members I felt confident enough to make this business a larger percentage of the portfolio.

Bought 3460 x UOS @ $0.52 = $1819.15 26/2/14

Will sign up for the DRP for a while as well.


----------



## robusta

A couple of weeks ago I bought some IAA



robusta said:


> *New Investment*
> 
> IAA - Ishares Asia 50 ETF
> 
> Bought 41 @ $49.00 = $2028.95 4/2/2013
> 
> http://au.ishares.com/fund/fund-overview-IAA-ASX.do
> 
> I know it is all bad news at the moment regarding currencies and growth but the region is still growing fast and long term I expect the Asian currencies to appreciate while A$ should depreciate. The two largest holdings Samsung and Taiwan Semiconductors are also attractive IMO. Like the other ETF in the fund (WDIV) I will participate in the DRP.




Well yesterday,

*Investment Sold*

41 x IAA @ $51.03 = $2072.28 or a capital gain of not much.

The main reason for selling is once again I found myself fully invested and I'm pretty sure can do better in individual stocks rather than this ETF.


----------



## robusta

*Portfoilo Update*

Reporting season is over and there has been a fair bit of trading around the edges so time for a update, but first a look at the larger picture.

The portfolio started on the 20th of July 2011 with a $30,000 line of credit and no cash, $40.00 a week was initially deposited building up to the current $75.00 a week that is currently being transferred. It still surprises that in such a short time this now adds up to $7425.00. The debt on the line of credit is now $27,743.93 and at the close of trading  today the portfolio has a market value of $52,047.99 so if liquidated right now with no brokerage there would be $24.304.06 of equity. 

Yes a rising tide does lift all boats and a nice improvement on the -$6000.00 equity of not too long ago. Now for a look at the investments.

EZL - Euroz Securities.

Bought, 1412x EZL @ $1.055 = $1509.61 on 17/07/12, now trading at $1.255 ($1722.06) a gain of 17.39% This is the smallest position at 3.4% of the portfolio. Revenue was up 13.77% while NPAT was up 22.9% the management and majority shareholders running this business know a whole lot more about the resource and energy sectors than I ever will and they have a good history of share holder friendly capital allocation. 

HHL - Hunter Hall International

Bought; 1182 xHHL @ $2.85 = $3388.65 on 23/11/12, 717 xHHL @ $2.83 = $2049.06 on 11/03/13, and 638 xHHL @ $2.35 = $1519.25 on 30/05/13 for a grand total of 2357 shares for $6956.96, now with a market value of $7508.25 a loss of -17.95%
This position that is currently 10.97% of the portfolio has the distinction of being the largest percentage looser and also having the most capital allocated to it. FUM, net profit and dividends all fell. There is hope with no debt and a investment strategy and portfolio that I'm sure will outperform in the long term as they have in the past.

IMF - Bantham IMF limited

Bought; Bought 819 IMF @ $1.83 = 1518.72 on 3/10/2013, Bought 877 @ $1.71 = $1519.62 16/12/13 and Bought 870 @ $1.72 = $1516.35 on 05/02/2014 for a grand total of 2566 shares for $4554.69 now with a market value of $4464.84 a loss of 1.97% 
This recent investment is currently 8.58% of the portfolio. The most recent results looked good with revenue up 44% and profit up even more for what it's worth. The earnings will always be lumpy but if they grow and diversify internationally profits should even out in the medium to long term. At around current prices the DRP seems to me to be an attractive option.

IPP - Iproperty Group

Bought; 1660 x IPP @ $0.915 = $1538.85 on 14/11/12 and 1910 x IPP @ $0.785 = $1519.30 on 22/04/13 for a total of 3570 shares for $3058.15 now with a market value of $10995.60 a gain of 259.55%
At 21.13% of the portfolio this is by far the largest position and was by far the most difficult buy decision. Every other investment earns a profit and pays a dividend IPP has only had one cash flow positive quarter. The reason this is in the portfolio is because of the revenue growth and the chance they will build a competitive advantage like REA, the market seems to be thinking this is a possibility.

MTU - M2 Group

Bought, 649 x MTU @ $2.62 = $1711.99 08/08/11, now with a market value of $3918.75 a gain of 136.06%

This investment at 7.53% of the portfolio was a bit over twice as large about six months ago but profits were taken at around current prices, a decision I'm starting to regret. Back then the doubt was whether they could transition from growing by acquisitions to a more organic growth model. NPAT up 26% while earnings per share and dividends were also up enough to prove me wrong.

NVT - Navitas Limited

Bought; 1023 x NVT @ $2.93 = $3017.34 on 02/02/12 and Bought 266 @ $5.63 = $1517.53 on 30/10/13, now with a market value of $9744.84 a gain of 114.89%

The second largest position at 18.72% of the portfolio this is a excellent business. The recent headline results (revenue up 19%, NPAT up 3%) don't tell the full story. NVT is a cash generating machine with a excellent market leading business in a growing market. Makes me fell a little slow that I waited over a year and a half before increasing the investment in this one.

SRX - Sirtex Medical Limited

Bought, 150 x SRX @ $9.74 = $1480.95 on 24/04/13, now with a market value of $2422.50 a gain of 63.58%

This small investment is now 4.65% of the portfolio, a long history of growth is about to reach a crossroads with results of major clinical trials due for release early next year. The expected results should be either a large multi-bagger or a small loss in the future.

TGA - Thorn Group

Bought, 972 x TGA @ $1.505 =$1482.81 on 05/04/12, 1074 x TGA @$1.395 =$1518.18 on 26/04/12, 867 x TGA @ $1.745 = $1532.87 on 20/11/12 and Bought 762 @ $1.97 = $1521.09 on 07/02/14 for a grand total of 3675 shares for $6054.95, now with a market value of 7570.50 a gain of 25.03%

At 14.55% of the portfolio I consider this another core holding and will probably consider adding to the position on any further dips in price. The most recent results were solid but the thing to keep an eye on are the investments being made in future growth areas meanwhile Radio Rentals just keeps on spinning off cash.

UOS - United Overseas Australia

Bought; Bought 2634 @ $0.535 = $1429.14 on 13/2/14 and 3460 x UOS @ $0.52 = $1819.15 on 26/2/14, currently trading at 3387.17 a gain of 4.12%

This most recent investment is 6.5% of the portfolio, at a nice discount to NTA and shareholder friendly management I will participate in the DRP. 

WDIV- SPDR S&P Global Dividend Fund

Bought, Bought 128 x WDIV @ $15.83 = $2046.19 on 07/01/14, now valued at $2068.48 a gain of 1.09%

This second smallest position (3.97% of the portfolio) is still under review. This ETF in my opinion holds a basket of undervalued securities, the question is how much growth can they deliver?


----------



## Ves

Hi Robusta,   looks like you have learnt a lot by holding some of these businesses and generally from being an active participant in the market (investing / trading with real money) rather than a passive observer (ie. just reading books and watching).

I have enjoyed watching your journey unfold.  Despite a lot of earlier criticism and doubt about your method,  it seems to have turned out quite well!


----------



## VSntchr

Nice update Robusta, I've followed your journey from day 1 and I cant believe its coming up on 3 years in a couple of months.
The overall performance of your portfolio has been very impressive, and it seems that its building momentum.

After reading the above I can say that I am certainly jealous over some of your investments and regret not adding them to my portfolio at the times you have.

You have copped a lot of flak in this journal but you've taken it all constructively and come out of it far better off, and so have many others reading it (me for one). 

Thanks!


----------



## nomadic1970

Robusta,

Well done. I have one question (and apologies if you already posted) but curious as to what you look for (criteria) in the companies you invest in. 

For example, IPP now (from Commsec) has a PE of 300+, no PEG, no dividends, ROE?. Please note that I am in no way critical... So you must obviously looking at something else. I am just wanting a see if I can learn a little something from you. (Though I do note that Consensus had target price updated on 3/3/2014 to $2.95)

Regards


----------



## VSntchr

nomadic1970 said:


> Robusta,
> 
> Well done. I have one question (and apologies if you already posted) but curious as to what you look for (criteria) in the companies you invest in.
> 
> For example, IPP now (from Commsec) has a PE of 300+, no PEG, no dividends, ROE?. Please note that I am in no way critical... So you must obviously looking at something else. I am just wanting a see if I can learn a little something from you. (Though I do note that Consensus had target price updated on 3/3/2014 to $2.95)
> 
> Regards




I'll give you my best shot at answering that before Robusta chimes in.
One thing that always annoyed me about a popular Valueable Investment expert was that he touted that you cannot value a company that is not earning money. Whilst this is true if you take it literally, I believe that value investors are looking to value the present value of all future cash flows of any investment.

A true value investor that has researched an investment deeply and has a good understanding of the business, its advantages, its value-drivers and its future earnings capacity will have the ability to derive a rough valuation of this business. This is possible with companies that are currently loss making, or companies that are already in a period of mature and stable growth.

As for IPP I'll let Robusta fill you in.


----------



## robusta

Ves said:


> Hi Robusta,   looks like you have learnt a lot by holding some of these businesses and generally from being an active participant in the market (investing / trading with real money) rather than a passive observer (ie. just reading books and watching).
> 
> I have enjoyed watching your journey unfold.  Despite a lot of earlier criticism and doubt about your method,  it seems to have turned out quite well!




Early days yet Ves but fairly happy at the moment. I think this thread shows if you concentrate on buying the best businesses you can find at a reasonable price and give it enough time positive results will follow. Much of the criticism was deserved there were a lot of blunders along the way.



VSntchr said:


> Nice update Robusta, I've followed your journey from day 1 and I cant believe its coming up on 3 years in a couple of months.
> The overall performance of your portfolio has been very impressive, and it seems that its building momentum.
> 
> After reading the above I can say that I am certainly jealous over some of your investments and regret not adding them to my portfolio at the times you have.
> 
> You have copped a lot of flak in this journal but you've taken it all constructively and come out of it far better off, and so have many others reading it (me for one).
> 
> Thanks!




Yes time does fly when you are having fun. You along with many others have taught me too many lessons to count. Yes there is some nice momentum at the moment and it is being helped by the leverage, if there was a major correction soon all my equity could vanish in a puff of smoke.


----------



## robusta

nomadic1970 said:


> Robusta,
> 
> Well done. I have one question (and apologies if you already posted) but curious as to what you look for (criteria) in the companies you invest in.
> 
> For example, IPP now (from Commsec) has a PE of 300+, no PEG, no dividends, ROE?. Please note that I am in no way critical... So you must obviously looking at something else. I am just wanting a see if I can learn a little something from you. (Though I do note that Consensus had target price updated on 3/3/2014 to $2.95)
> 
> Regards




Sorry a bit pushed for time nomadic I will give a fuller answer later. The truth with IPP is there were no DCF, ROE method or any other traditional valuation methods used. The one question I asked was does this business have a sustainable competitive advantage. The answer was not yet but there was a better than even chance they would build one.


----------



## craft

robusta said:


> if there was a major correction soon all my equity could vanish in a puff of smoke.




Hi Robusta 

Such an occurrence is an opportunity if you have the right mindset and liquidity. Suspect you have the mindset down pat, so my question is about liquidity.

How much of the LOC is un-used

What is the liquidity arising from the strategy?
Ie what is your free cash flow to* increase the quantity *of your investments after you have accounted for: Dividends, Interest on LOC, monthly fees etc, weekly personal contributions, tax implications etc? 

How sustainable is the dividend stream in a correction?
What is your portfolio’s current dividend return and payout ratio?

Nothing more frustrating then having no money available when everything is on special.

Cash is a crap return whilst you wait for the specials to come up – the right balance of opposing opportunity costs????

Liquidity from a robust dividend stream is valuable– especially to someone who can deploy it in the eye of a storm.

Just some thoughts.


----------



## robusta

nomadic1970 said:


> Robusta,
> 
> Well done. I have one question (and apologies if you already posted) but curious as to what you look for (criteria) in the companies you invest in.
> 
> For example, IPP now (from Commsec) has a PE of 300+, no PEG, no dividends, ROE?. Please note that I am in no way critical... So you must obviously looking at something else. I am just wanting a see if I can learn a little something from you. (Though I do note that Consensus had target price updated on 3/3/2014 to $2.95)
> 
> Regards




When this portfolio was started the valuation method and criteria used was the Roger Montgomery "secret formula" outlined in his book Valuable. Since then I have discovered the formula has some massive shortcomings and had never been much of a secret either. 

So after reading a whole heap of Graham, Buffet, Fisher and co I decided the most important investment criteria to me was that squidgy thing called a competitive advantage. PE ratios, charts and consensus targets are almost totally ignored. PEG ratios, high ROE and strong cash flows along with the ability to grow earnings over the long term are all attributes that are considered.

Would have to say Navitas was the business that changed it all for me, for ages it confused me. How could they pay out all earnings for such a long period of time and still grow? A study of the cash flow statements show there is something very special going on. People are lining up to pay them money for a service they will use in the future that costs Navitas comparatively little to produce. So when the price fell below $3.00 on some short term bad news and the dividend yield was almost double the best saving accounts there was no need to get the calculator out for the buying decision. Many smarter people than me bought for less than half the price a few short years earlier.

Probably sounds a bit simplistic but the main criteria would have to be the ability to grow at a decent rate compounded into the future compared to the price I have to pay. 



VSntchr said:


> I'll give you my best shot at answering that before Robusta chimes in.
> One thing that always annoyed me about a popular Valueable Investment expert was that he touted that you cannot value a company that is not earning money. Whilst this is true if you take it literally, I believe that value investors are looking to value the present value of all future cash flows of any investment.
> 
> A true value investor that has researched an investment deeply and has a good understanding of the business, its advantages, its value-drivers and its future earnings capacity will have the ability to derive a rough valuation of this business. This is possible with companies that are currently loss making, or companies that are already in a period of mature and stable growth.
> 
> As for IPP I'll let Robusta fill you in.




Difficult to argue with you VSntchr while there is probably no way to get a accurate valuation of a business like this concentrating on a business that may have a sustainable competitive advantage it is possible to make a investment decision.

Taking a look at the revenues from fy2012 of 15.5m and compounding the growth over a nice period like ten years could give some interesting outcomes. (over the previous 4 years CAGR was around 40% organic growth plus acquisitions)

15.5m @ 20% over 10 years = $96m
         @ 25% = $144m
         @ 30% = $213m
         @ 35% = $311m

This from a business with a then market cap of around $160m and a very high amount of operational leverage on small levels capital required to run the business.

All sounds a little crazy? You are probably right but REA have grown their revenue by a CAGR of arounf 33% over the last ten years.


----------



## skc

robusta said:


> The portfolio started on the 20th of July 2011 with a $30,000 line of credit and no cash, $40.00 a week was initially deposited building up to the current $75.00 a week that is currently being transferred. It still surprises that in such a short time this now adds up to $7425.00. The debt on the line of credit is now $27,743.93 and at the close of trading  today the portfolio has a market value of $52,047.99 so if liquidated right now with no brokerage there would be $24.304.06 of equity.
> 
> Yes a rising tide does lift all boats and a nice improvement on the -$6000.00 equity of not too long ago. Now for a look at the investments.




Very nice Robusta. Congratulations on a great result and a great thread. Many people will learn a great deal by following your journey.


----------



## robusta

Still haven't found time to give craft's questions above the answers they deserve but on Friday.

*Investment Sold*

128x WDIV @ $16.19 = $2052.37

The main reason was to free up some capital for future investments. By the way just in case there was any doubt this is a real money portfolio here is the coarse of sales from Friday


Condition
12:52:11 PM	16.070	1,119	17,982.330	
11:19:28 AM	16.040	1,150	18,446.000	
10:36:07 AM	16.080	623	10,017.840	
10:34:23 AM	16.190	7,970	129,034.300	
10:33:51 AM	16.190	509	8,240.710	
10:33:51 AM	16.190	128	2,072.320  ** minus the $19.95 I pay the broker.


----------



## robusta

craft said:


> Hi Robusta
> 
> Such an occurrence is an opportunity if you have the right mindset and liquidity. Suspect you have the mindset down pat, so my question is about liquidity.




Yes no drama deploying capital when I see opportunity, the question remains how disciplined I can remain during a bull market...



craft said:


> How much of the LOC is un-used




Currently $4460.35 out of the $30,000 limit



craft said:


> What is the liquidity arising from the strategy?
> Ie what is your free cash flow to* increase the quantity *of your investments after you have accounted for: Dividends, Interest on LOC, monthly fees etc, weekly personal contributions, tax implications etc?




The dividends this financial year have just reached a point that is marginally above my expenses (interest on the LOC plus a yearly fee equal to about one months interest). The other way to look at it at the moment the weekly contributions ($75/week or $3900.00 p/a) is the main driver to either reduce debt or increase investments.

The tax implications are considered separately to the portfolio. Any franking credits, income, capital gains or losses all go against personal income and are paid from or received into personal income.



craft said:


> How sustainable is the dividend stream in a correction?
> What is your portfolio’s current dividend return and payout ratio?




There is a core of very sustainable dividends (NVT, TGA, MTU and UOS)and a few that maybe a touch more volatile (EZL, SRX and IMF)



craft said:


> Nothing more frustrating then having no money available when everything is on special.
> 
> Cash is a crap return whilst you wait for the specials to come up – the right balance of opposing opportunity costs????




Currently paying 5.43% interest on the LOC, so hopefully that will help me keep some funds available in reserve in the future. 



craft said:


> Liquidity from a robust dividend stream is valuable– especially to someone who can deploy it in the eye of a storm.
> 
> Just some thoughts.




There is high hopes of the dividends rising well into the future.

Thank you very much for your thoughts Craft


----------



## skc

robusta said:


> Currently $4460.35 out of the $30,000 limit
> 
> The dividends this financial year have just reached a point that is marginally above my expenses (interest on the LOC plus a yearly fee equal to about one months interest). The other way to look at it at the moment the weekly contributions ($75/week or $3900.00 p/a) is the main driver to either reduce debt or increase investments.
> 
> The tax implications are considered separately to the portfolio. Any franking credits, income, capital gains or losses all go against personal income and are paid from or received into personal income.




Is your LOC against the equity of your PPOR? If so, is your $75/week going into equity of your PPOR? You should build up equity there and increase the LOC limit as you go. That way you make sure your debt remains tax deductible (as opposed to paying non-deductible interest on the home loan while holding shares with equity).

Also, by increasing a LOC you reduce the yearly fee payable in % terms. By paying 13month interest you are basically borrowing at 5.88%.


----------



## robusta

skc said:


> Is your LOC against the equity of your PPOR?



Yes


skc said:


> If so, is your $75/week going into equity of your PPOR?



No


skc said:


> You should build up equity there and increase the LOC limit as you go. That way you make sure your debt remains tax deductible (as opposed to paying non-deductible interest on the home loan while holding shares with equity).
> 
> Also, by increasing a LOC you reduce the yearly fee payable in % terms. By paying 13month interest you are basically borrowing at 5.88%.




That makes perfect sense skc, I had never thought of that and will have to work towards implementing that strategy. 
Just a couple of confessions to explain why there will be a delay. My family (myself included) have a fairly long history of spending more than we earn.  A couple of years ago after reading Rich Dad Poor Dad by Robert Kiyosaki I decided enough was enough. This portfolio is the pay myself first strategy, no more would I work hard with nothing to show for it every week. The debt reduction part of the strategy is still ongoing with varying amount's of success. There are still some credit card debt and a car loan to be paid down. Until the bad debt elimination has been achieved I don't want to confuse the issue by messing with the redraw facility or the line of credit limit. Much easier to announce with what little authority I have in the house "this $75.00/week is for long term investment and not to be touched for any other purpose"


----------



## skc

robusta said:


> That makes perfect sense skc, I had never thought of that and will have to work towards implementing that strategy.
> Just a couple of confessions to explain why there will be a delay. My family (myself included) have a fairly long history of spending more than we earn.




Well sounds like you are heading in the right direction 

Just do it when the time is right.


----------



## robusta

The other thing that needs to be considered with your suggestion skc is, do I have the discipline to hold on to available capital during a bull market? The strategy requires liquidity to be held for future opportunities and for the most part the LOC has been if not fully close to fully utilised. Take today for example...

*New Investment*

CAM - Clime Capital Limited

Bought 1456 @ $1.03 = $1519.63

Recently I tried a few ETF's on for size looking for a nice diversified holding that could form a cornerstone for the portfolio and compound out into the distance. Hopefully CAM will fit the bill. First of all I like the holdings and for the most part the investment record, they have also recently announced a change of strategy to up to 30% of the portfolio in international equities. While the current dividend yield at a touch below 4% does not look that attractive quarterly payments along with the DRP should see some nice growth over time. There is also the bonus of 1456 options with a exercise price of $1.04 in October 2015 for those on the register on the 9th of April.


----------



## robusta

skc said:


> Well sounds like you are heading in the right direction
> 
> Just do it when the time is right.




Cheers it feels like three steps forward two steps backwards sometimes but we are getting there...


----------



## robusta

*New Investment*

ICQ - Icar Asia Limited

Bought 1220 @ $1.23 = $1520.55

Once again like my other related holding IPP there is not a lot as far as valuation metrics going for this business. They do seem to have first mover advantage and it would be nice if they could emulate major shareholder CRZ over the next ten years...


----------



## CanOz

robusta said:


> *New Investment*
> 
> ICQ - Icar Asia Limited
> 
> Bought 1220 @ $1.23 = $1520.55
> 
> Once again like my other related holding IPP there is not a lot as far as valuation metrics going for this business. They do seem to have first mover advantage and it would be nice if they could emulate major shareholder CRZ over the next ten years...




Well done Rubusta, buying a pullback! You technical trader you!!


----------



## robusta

CanOz said:


> Well done Rubusta, buying a pullback! You technical trader you!!




Wow is that what my stumbling around hit on? So that line on you chart is some kind of moving average?


----------



## CanOz

robusta said:


> Wow is that what my stumbling around hit on? So that line on you chart is some kind of moving average?




Yeah, nothing special (exponential moving average of the 45 day closing price), just a habit to put in on the chart so it shows the trend at a glance...

The price gapped higher, then came back to fill the gap, sometimes a good place to buy, as you did...or close enough to it. Really its just a good place to define risk if you wanted to get out of the position and use the capital someplace else...

Good luck with it!

Are there any of you fundy guys that use a chart to finesse your executions a little?


----------



## Ves

CanOz said:


> Are there any of you fundy guys that use a chart to finesse your executions a little?



Nope,  I just set a buying day each month.   The buying date itself is the same every month (which is obviously arbitrary in itself),  but I found it keeps me from emotionally "snatching" at price action at all other times and helps focuses my decision on my valuation.

If it meets my valuation criteria I just buy it on this day.  If there is not anything that meets my criteria I don't buy.  

I found that trying to execute entries for long-term investments based on price action was not worth the additional effort, and allowing myself to buy at any time made the process more emotional,   and based on "guess work" (is this a good time to buy?) that was separate from my actual strategy.


----------



## VSntchr

CanOz said:


> Are there any of you fundy guys that use a chart to finesse your executions a little?




Can - I have been reading some Radge stuff this week in an attempt to increase my skillset, however although I am a fundy at heart..I am sure you have seen me over in the pairs thread...which is pretty technical (or shall we say statistical) so my mind has been open for a little while, I have just lacked the skills.


Robusta, I saw that Clime just increased their stake in SMX, I have been adding some in this space (although not SMS) so hopefully its a sign the bottom is <12 months away as value investors are known for buying a bit early


----------



## nomadic1970

CanOz said:


> Are there any of you fundy guys that use a chart to finesse your executions a little?




Yes, but mainly to to see share price direction. I would rather see the price going up vs down. For example, FXL is one I am watching presently. I don't mind if I don't get it at the very bottom, but want to see some sort of turn-around but fundamentally good. Ditto for CCP.


----------



## CanOz

Great stuff guys, i can't see why an investor wouldn't look at a chart if they thought it might give them a better price at which to buy at...I reckon even Buffet would have guys on his staff that would tell him what good level would be to start accumulating stock based on more than just the fundamentals...Surely. 

Even as Nomadic says, if its only just a change in trend, or a bottom in place...very handy...


----------



## robusta

CanOz said:


> Are there any of you fundy guys that use a chart to finesse your executions a little?




Not me. I have considered it but don't want to take any focus off the decision making process. Most of my purchases are companies that I want to own part of that have a falling share price for some reason. I amyet to be convinced that a chart will help with my entry points.

Very impressed with the discipline shown by Ves regarding an arbitrary day to make a buying decision. I often find myself looking at market depth and watching the general market movements to try to pick a cheaper entry point.



VSntchr said:


> Robusta, I saw that Clime just increased their stake in SMX, I have been adding some in this space (although not SMS) so hopefully its a sign the bottom is <12 months away as value investors are known for buying a bit early




Would be good to see, SMX seems like a solid business and there are a few that are very beaten up in this sector... I am also looking forward to see what Clime are buying internationally and quietly cheering a hopefully temporary higher AUS$ while they deploy some capital overseas.


----------



## robusta

nomadic1970 said:


> Yes, but mainly to to see share price direction. I would rather see the price going up vs down. For example, FXL is one I am watching presently. I don't mind if I don't get it at the very bottom, but want to see some sort of turn-around but fundamentally good. Ditto for CCP.




Yes I have a eye on both of these as well, I still regret selling CCP a bit over a year and a half ago for a small profit.


----------



## TPI

Hi robusta,

Great thread, documenting your thoughts and progress is a great way to learn.

One comment I wanted to make was that although your LOC funds invested have grown a lot over the last few years, your overall portfolio dollar value and cash flow position on this portfolio seems to me to still be relatively small in terms of its likelihood of making a meaningful impact on any lifestyle or retirement goals you may have.

Have you considered how else you can build up more capital to then deploy into the market in a more sizeable and impactful way?


----------



## Ves

craft said:


> V
> 
> _[Ves - my edit removed text about FGE]_
> 
> You recently purchased DTL, the market could easily take its price 50% below your purchase price in spite of nothing materially changing to the long term outlook of the business, this sort of drop occurred in 2008.  Now is the time to be considering question 4 – not when the market is showing you the relevance of the question *and trust me, one day it will.*
> “Can I hold this stock for as long as it takes” –  It’s the implications of this question that need to be considered. Am I Psychologically prepeared to hold no matter what the market is saying.  Do I have the financial position to hold no matter what. (Loss of employment, loans recalled, source of alternative available cash flow etc etc)
> 
> If you can’t stick to the investment discipline in the darkest of days and they will come, then you are better off recognising that now and putting in place a strategy that you can live with under worst case scenario’s, for most that will mean limiting drawdown’s through controlling market price risk.
> 
> Sorry Robusta to clog up your thread but I hope addressing the questions Oddson proposed has some relevance for you.



Post #161.

Interesting to re-read this in retrospect when it goes from theory to practice.   Even more interesting to note your selection of company (DTL).  Nice coincidence   (--- if not can I borrow your crystal ball for a few weeks?)


----------



## craft

Ves said:


> Post #161.
> 
> Interesting to re-read this in retrospect when it goes from theory to practice.   Even more interesting to note your selection of company (DTL).  Nice coincidence   (--- if not can I borrow your crystal ball for a few weeks?)




Nice?  You’re referring to it as nice; obviously you have passed your practical with flying colours. 

More a certainty then a coincidence – holding over an IT investment cycle was always going to spook the market. 

To add to this cycle we have the fear of cloud destroying their offering – Bet there was a corresponding scare when computers were taking over from type writers and many other times since.



> In 1984, Data#3 was born out of two Queensland-based firms – Powell, Clark and Associates and Albrand Typewriters & Office Machines Pty Ltd. Albrand Typewriters and Office Machines, an IBM Typewriter dealer with two Brisbane locations in Aspley and the CBD, contributed to Data#3 an excellent reputation and a wealth of experience in provision of quality office equipment, materials and supplies Data#3 staff in the mid eighties from the most respected, reliable and progressive suppliers.


----------



## Ves

craft said:


> Nice?  You’re referring to it as nice; obviously you have passed your practical with flying colours.



My three biggest positions (by cost) are DTL,  UGL and CAB  (although CAB is under 10% down, break even with divs).    I've taken a bit of a bath in relative terms in that order.   They're my only three underwater positions.

Performance wise,   they have cost the portfolio 10% or so.   Respectively they are 12.7%,  10.7% and 12.1% of the portfolio on terms of cost.   

Interesting reading.     If you look at them in isolation,  it may seem the end of the world,   but in totality,  the team is going OK.   About 7% above the S&P ASX 200 accumulation index since inception  (despite perhaps being too aggressive at times).


----------



## robusta

Well its been a while I haven't updated this portfolio since early March, life has been busy...

*Portfolio Update*

The portfolio started on the 20th of July 2011 with a $30,000 line of credit and no cash, $40.00 a week was initially deposited building up to the current $75.00 a week that is currently being transferred. It still surprises that in such a short time this now adds up to $8850.00. The debt on the line of credit is now $27,673.74 and at the close of trading  today the portfolio has a market value of $54,446.49 so if liquidated right now with no brokerage there would be $26,772.75 of equity. 

Here are the investments held.

CAM - Clime Capital Limited

Bought 1456 @ $1.03 = $1519.63 on 26/3/14, now trading at $0.965 ($1405.04) a loss of -6.31%. This small position should grow through the DRP and the nice conservative value investing strategy. If I can stay the corse this one should pay my utilities in retirement through the quarterly distributions.

CAMO - Clime Capital Options issued 9/4/14 at N/C, exercise price $1.04, expire 20/10/15 now trading at $0.015 ($21.84)


EZL - Euroz Securities.

Bought, 1412x EZL @ $1.055 = $1509.61 on 17/07/12, now trading at $1.40 ($1976.80) a gain of 30.95%  Revenues, dividends and NPAT are up, the management and majority shareholders running this business know a whole lot more about the resource and energy sectors than I ever will and they have a good history of share holder friendly capital allocation. 

HHL - Hunter Hall International

Bought; 1182 xHHL @ $2.85 = $3388.65 on 23/11/12, 717 xHHL @ $2.83 = $2049.06 on 11/03/13, and 638 xHHL @ $2.35 = $1519.25 on 30/05/13 for a grand total of 2357 shares for $6956.96, now with a market value of $5075 a loss of -27.07%

ICQ - Icar Asia Limited

Bought 1220 @ $1.23 = $1520.55 on 9/04/14, now trading at $1.635 ($1994.70) a gain of 32.93%

Once again like my other related holding IPP there is not a lot as far as valuation metrics going for this business. They do seem to have first mover advantage and it would be nice if they could emulate major shareholder CRZ over the next ten years...IMF - Bantham IMF limited

Bought; Bought 819 IMF @ $1.83 = 1518.72 on 3/10/2013, Bought 877 @ $1.71 = $1519.62 16/12/13 and Bought 870 @ $1.72 = $1516.35 on 05/02/2014 for a grand total of 2566 shares for $4554.69 now with a market value of $5067.85 a gain of 11.27% 


IPP - Iproperty Group

Bought; 1660 x IPP @ $0.915 = $1538.85 on 14/11/12 and 1910 x IPP @ $0.785 = $1519.30 on 22/04/13 for a total of 3570 shares for $3058.15 now with a market value of $11888.10 a gain of 288.74%


MTU - M2 Group

Bought, 649 x MTU @ $2.62 = $1711.99 08/08/11, now with a market value of $3762.00 a gain of 126.61%



NVT - Navitas Limited

Bought; 1023 x NVT @ $2.93 = $3017.34 on 02/02/12 and Bought 266 @ $5.63 = $1517.53 on 30/10/13, now with a market value of $9074.56 a gain of 100.13%


SRX - Sirtex Medical Limited

Bought, 150 x SRX @ $9.74 = $1480.95 on 24/04/13, now with a market value of $2860.50 a gain of 93.15%

This small investment is now 4.65% of the portfolio, a long history of growth is about to reach a crossroads with results of major clinical trials due for release early next year. The expected results should be either a large multi-bagger or a small loss in the future.

TGA - Thorn Group

Bought, 972 x TGA @ $1.505 =$1482.81 on 05/04/12, 1074 x TGA @$1.395 =$1518.18 on 26/04/12, 867 x TGA @ $1.745 = $1532.87 on 20/11/12 and Bought 762 @ $1.97 = $1521.09 on 07/02/14 for a grand total of 3675 shares for $6054.95, now with a market value of $8121.75 a gain of 34.13%


UOS - United Overseas Australia

Bought; Bought 2634 @ $0.535 = $1429.14 on 13/2/14 and 3460 x UOS @ $0.52 = $1819.15 on 26/2/14, currently trading at $3199.35 a loss of -0.9%


----------



## Klogg

robusta said:


> Well its been a while I haven't updated this portfolio since early March, life has been busy...
> 
> *Portfolio Update*
> 
> The portfolio started on the 20th of July 2011 with a $30,000 line of credit and no cash, $40.00 a week was initially deposited building up to the current $75.00 a week that is currently being transferred. It still surprises that in such a short time this now adds up to $8850.00. The debt on the line of credit is now $27,673.74 and at the close of trading  today the portfolio has a market value of $54,446.49 so if liquidated right now with no brokerage there would be $26,772.75 of equity.




Congrats robusta, that's a nice record you've got for yourself. And even nicer that you've done it for all to see, removing all doubt. 


Interest fact on UOS (I own) - I was looking at the "10 year return vs sector" graph in ComSec and found UOS has average a shareholder return of 35% per annum over a 10 year period (approximately)... In absolute terms, $10k invest in late '04 would be worth $160k today (dividends reinvested), according to the feature on Comsec that is.

See here:




I find that amusing, given it's trading below NTA/book value...


----------



## robusta

Thanks Klogg but I think there are a few posters on this forum with a better longer record...

I agree crazy regarding UOS, I looked at it for ages and thought it was way too risky: If I remember correctly you provided some research that helped me look at this business in a new light - thank you.


----------



## McLovin

Klogg said:


> Congrats robusta, that's a nice record you've got for yourself. And even nicer that you've done it for all to see, removing all doubt.




+1

Just putting stuff on here changes the psychology of the investment. It's a lot harder when you have people telling you you're wrong (refer to the early part of this thread). Well done Robo.


----------



## robusta

*Investment Increased*

NVT- Navitas

Bought 409@ $4.88 = $2015.87

NVT have announced Macquarie Uni will not renew contract and the price has fallen from $7.00 +. Time will tell how this works out.

Days like this are the reason I love the stock market, yesterday I had a bit over $26,500 in equity, today a touch over $23,500 and now I'm fully invested as well. Anyway lucky it's reporting season, those dividends will help to rebuild the kitty for the next opportunity.


----------



## robusta

*Investment Increased*

Nothing exciting like NVT just the first of hopefully many CAM DRP's

17 shares @ $0.96446 =$16.40

I have to admit it's small potatoes now but looking forward to watching this one compound quarter by quarter.


----------



## GG999

I'm wondering what your approach will be to stocks like NVT and MTU in the future.

Is it best to decide that they were good choices and that you will hold on to those stocks indefinitely as long as nothing significantly changes with the companies. You will be prepared for big losses (on paper) where people will be saying that you should have taken profits. Instead you will be happy with increasing dividends and eventually a  much higher stock price many years in the future. And you would avoid transaction costs and paying tax on the capital gains thus meaning that you can keep more funds invested.

Or do you keep monitoring some sort of 'intrinsic value' and sell stocks where you think the price has gone up too much. Then move into a different stock that you estimate is better value at the time, only moving back to e.g NVT or MTU if they again appear to be good value.


----------



## robusta

GG999 said:


> I'm wondering what your approach will be to stocks like NVT and MTU in the future.
> 
> Is it best to decide that they were good choices and that you will hold on to those stocks indefinitely as long as nothing significantly changes with the companies. You will be prepared for big losses (on paper) where people will be saying that you should have taken profits. Instead you will be happy with increasing dividends and eventually a  much higher stock price many years in the future. And you would avoid transaction costs and paying tax on the capital gains thus meaning that you can keep more funds invested.
> 
> Or do you keep monitoring some sort of 'intrinsic value' and sell stocks where you think the price has gone up too much. Then move into a different stock that you estimate is better value at the time, only moving back to e.g NVT or MTU if they again appear to be good value.




Sorry for the slow reply, I haven't been been on ASF much lately. 

I would have to say with stocks like NVT and MTU the intention is to buy and hold but I would't rule out taking profits if the price gets too far ahead of "fair value". I'm not a fan of moving in and out of stocks as I've discovered I'm not a good trader. 

Take NVT as an example the all time high of $7.88 was probably overvalued but I think in the long term that price will be surpassed. I took profits on MTU over a year ago around the $6.50 mark and still regret that decision.

Anyway onto something else I hope to hold for the long term.

*New Investment*

VED- Veda Group Limited

Bought 725 shares @$2.20 =$1614.95  21/10/14

Been over three months since my last trade and have had an eye of VED for a long time. While the price is not a screaming buy I reckon this one has some sort of competitive advantage and some decent growth prospects.


----------



## robusta

Been a while again since my last post or trade for that matter anyway first a bit of housekeeping.

*Investment Increased*

CAM- Clime Capital

18 shares @ $0.954769  23/10/14 (DRP)

Now the real reason for this post.

*Investment Reduced*

Thorn Group
Sold 867 shares @ $2.955 = $2542.04 1/12/14

Below is my trading history with TGA



robusta said:


> TGA - Thorn Group
> 
> Bought;
> 972 x TGA @ $1.505 =$1482.81 on 05/04/12
> 1074 x TGA @$1.395 =$1518.18 on 26/04/12
> 867 x TGA @ $1.745 = $1532.87 on 20/11/12
> 762 @ $1.97 = $1521.09 on 07/02/14
> for a grand total of 3675 shares for $6054.95




I really like this company and hope to not regret this sale like when I took profits in MTU but the fact remains the share price has had a good run and probably gotten a bit ahead of the value of the business.
There seems to be some good prices being thrown up by the market at the moment in businesses that I want to have a piece of, VED for example is back in my buy zone and NVT is also looking enticing.

Out of sheer laziness I've sold the smallest entire parcel that will minimise CGT.


----------



## robusta

Thanks to my good friend copy and paste below is what the portfolio looks like tonight, 1/12/14



Code	Qty		Cost Basis	Date Acquired	Last Price	Change ($)	Gain/Loss ($)	Market Value	
CAM	1,491	AUD	1.030	26/03/2014	0.940	-0.005	-134.48	         1,401.54	   	
CAMO1,456	AUD	0.000	17/04/2014	0.002	0.000		                       2.91		
EZL	1,412	AUD	1.069	17/07/2012	1.055	-0.010	-19.95	         1,489.66	  	
HHL	2,537	AUD	2.742	23/11/2012	1.870	0.100	-2,212.77	         4,744.19	   	
ICQ	1,220	AUD	1.230	09/04/2014	1.030	0.005	-244.00	         1,256.60		
IMF	2,566	AUD	1.775	03/10/2013	2.180	-0.020	1,039.19	         5,593.88	 
IPP	3,570	AUD	0.857	14/11/2012	2.460	-0.060	5,724.05	         8,782.20		
MTU	627	        AUD	2.648	08/08/2011	8.230	-0.080	3,500.11	         5,160.21	 
NVT	1,698	AUD	3.846	02/02/2012	4.920	-0.110	1,823.82	         8,354.16	 
SRX	150	        AUD	9.873	24/04/2013	26.000	-0.590	2,419.05	         3,900.00		
TGA	2,808	AUD	1.685	05/04/2012	2.930	-0.020	3,495.13	         8,227.44		
UOS	6,094	AUD	0.530	13/02/2014	0.450	0.000	-486.04	         2,742.30		
VED	725	        AUD	2.200	21/10/2014	2.190	-0.100	-7.25	                 1,587.75	
                                                                                                      $14899.77           $53242.84


----------



## Anglers Rest

Thank you for posting consistently over the last several years here robusta. It's valuable to see things mapped out in real time. As someone who is just starting out  - Dec 16 will be one year of investing direct in the ASX for me. Your thread is a useful place to learn and I haven't fully digested it either! We have come to some different conclusions on the value of a stop loss and averaging down however! Jessie Livermore's idea of not fighting the market holds a lot of weight for me, but perhaps it's that I'm not comfortable with short term volatility (or losing capital over the long term). I agree however picking the tops and bottoms is futile. I enjoyed Nick Radge's book Adaptive Analysis for Risk Management.
Consider a list of "A1" stocks from Montgomery in 2010 - if an investor followed the buy and hold approach they would have a 13.83% pa return vs a per holding stop loss set at 8% would lead to a return of 17.08% pa - excluding dividends along the way. I know there are a lot of assumptions here (was there a MOS at the time of purchase for all these stocks, that RM's 'picks' are worth buying, that prospects and therefore valuations didn't change) but it is food for thought. I use RM's stocks only because we both follow a similar valuation methodology based on his book and that several of yours and his investments are similar (not all!).

Thanks again, it's really an enlightening and refreshing read to see a journal from a value investor!


----------



## robusta

Anglers Rest said:


> Thank you for posting consistently over the last several years here robusta. It's valuable to see things mapped out in real time. As someone who is just starting out  - Dec 16 will be one year of investing direct in the ASX for me. Your thread is a useful place to learn and I haven't fully digested it either! We have come to some different conclusions on the value of a stop loss and averaging down however! Jessie Livermore's idea of not fighting the market holds a lot of weight for me, but perhaps it's that I'm not comfortable with short term volatility (or losing capital over the long term). I agree however picking the tops and bottoms is futile. I enjoyed Nick Radge's book Adaptive Analysis for Risk Management.
> Consider a list of "A1" stocks from Montgomery in 2010 - if an investor followed the buy and hold approach they would have a 13.83% pa return vs a per holding stop loss set at 8% would lead to a return of 17.08% pa - excluding dividends along the way. I know there are a lot of assumptions here (was there a MOS at the time of purchase for all these stocks, that RM's 'picks' are worth buying, that prospects and therefore valuations didn't change) but it is food for thought. I use RM's stocks only because we both follow a similar valuation methodology based on his book and that several of yours and his investments are similar (not all!).
> 
> Thanks again, it's really an enlightening and refreshing read to see a journal from a value investor!




Thank you for your post Anglers Rest, there have been some fantastic posters on this thread that have taught me more than I thought possible.

Having no stop losses and averaging down are central to my investment criteria. To be honest I have discovered I'm not very good at trading shares and also valuing companies accurately. The only edge I think I have is to spot a better than average business that should grow profits in the longer term (have made some BIG mistakes however) and to buy them at a reasonable price. 

The markets are volatile, I have no confidence in myself to re-enter after being stopped out.

I must also admit to being a massive RM fan early on but I haven't used his formula for at least a year and a half. I may have read some Jessie Livermore in the past but have not read any Nick Radge yet.


----------



## Anglers Rest

> there have been some fantastic posters on this thread that have taught me more than I thought possible.



Totally agree. That people put in the effort for free is humbling. Still a lot to learn but I've subscribed to your thread.



> Having no stop losses and averaging down are central to my investment criteria.




Hmm, yeah I'm still figuring out there place in my own approach.  Time will tell.



> Jessie Livermore




Parts are entertaining, parts a bit hard to get through. Radge actually I read after reading a post from someone on ASF. (whoever referred to the first few chapters as "the ducks guts" thank you!)


----------



## robusta

Thanks Anglers Rest I will have to have a look at those books.

*New Investment*

DNA- Donaco international

Bought 1986 @ $0.755 = $1519.38

I like the casino business, they seem to have a habit of making money. Not so long ago DNA raised capital at somewhere north of $1.35, they are in Vietnam close to the Chinese border and should be in for a nice period of growth over the next few years.

Interesting investment thesis here from PM Capital back in August

http://www.pmcapital.com.au/news/webinars_and_videos/donaco__dna_investment_thesis151.aspx


----------



## robusta

*Investment Increased*

DNA- Donaco

Bought 2726 @ $0.55 =$1519.36 22/01/15

So the share price has fallen over 20% from my initial purchase so I picked up some more.

Needless to say will be very interested in the reason for the trading halt called a couple of hours later.


----------



## robusta

*Investment Increased*

Just the DRP
CAM - Clime Capital

18 Shares @ $0.936242 = $16.85 23/01/15


----------



## robusta

*Investment Reduced*

Sold 1629 x TGA @ $2.88 = $4671.15

Below is my trading history with this business.




robusta said:


> TGA - Thorn Group
> 
> Bought, 972 x TGA @ $1.505 =$1482.81 on 05/04/12, 1074 x TGA @$1.395 =$1518.18 on 26/04/12, 867 x TGA @ $1.745 = $1532.87 on 20/11/12 and Bought 762 @ $1.97 = $1521.09 on 07/02/14 for a grand total of 3675 shares for $6054.95






robusta said:


> Back in December I sold a small parcel.
> 
> *Investment Reduced*
> 
> Thorn Group
> Sold 867 shares @ $2.955 = $2542.04 1/12/14
> 
> I really like this company and hope to not regret this sale like when I took profits in MTU but the fact remains the share price has had a good run and probably gotten a bit ahead of the value of the business.
> There seems to be some good prices being thrown up by the market at the moment in businesses that I want to have a piece of, VED for example is back in my buy zone and NVT is also looking enticing.
> 
> Out of sheer laziness I've sold the smallest entire parcel that will minimise CGT.




So all up a nice capital gain locked in along with a decent dividend yield along the way. I still hold 1179 shares with a market value at market close of $3407.31

The reasons that pushed this decision in no particular order are;

1) need to raise around $1000.00 by the end of the month to participate in the DNA rights offer.

2) the desire to at least double the position size of VED

3) the attractive price NVT is trading at at the moment and the desire to increase this holding.


----------



## robusta

*Investment Increased* 

VED - Veda Group 

bought 655 @ $2.33 = $1546.10

The more I've looked at this business the more I wanted to make it a decent position size.

20 years of consistent growth at a CAGR of 14.6%, could be a good chance of this continuing.


----------



## skc

robusta said:


> *New Investment*
> 
> UOS - United Overseas Australia
> 
> Bought 2634 @ $0.535 = $1429.14 13/2/14
> 
> This is a REIT invested mainly in Malaysia, they have a good history of capital management, low debt and a nice little discount to NTA.




Just curious...
Do you know the correct number of shares outstanding for UOS?


----------



## robusta

skc said:


> Just curious...
> Do you know the correct number of shares outstanding for UOS?




I will have to look that up, they just reported tonight.
Do you mean ASX listed or total shares outstanding. There is a dual listing and  confusing company structure


----------



## skc

robusta said:


> I will have to look that up, they just reported tonight.
> Do you mean ASX listed or total shares outstanding. There is a dual listing and  confusing company structure




Aha... got it. Thanks. I was reading the report and I couldn't get the correct EPS figures by dividing the nubmer of shares on issue.

Upon further investigation... The ASX quoted shares on issue is 496.767m, while total issued capital has 1172.377m shares. That's how a $87.1m profit gets translated into EPS of ~7.6c. At 50c, market cap is ~$560m and trading at PE ~6.6x. Plus it has very substantial assets on the balance sheet... certainly looks cheap on paper.


----------



## Klogg

skc said:


> Certainly looks cheap on paper.




If they could provide a look-through of the balance sheet, to determine which assets sit in each company, it'd be worth much more. There's about $400m AUD on the books, but if that all sits in the development company, then it's only really 68% owned by UOS. 
Alternatively, if it all were within UOS, then you're getting a lot of the MC in cash, ignoring any UOAREIT holding and investment properties (UOADB).

However, they do provide an NTA/share of 81c, after accounting for Non-Controlling interests. Even if you discount this for a drop in KL property values, it's hard to see NTA/Share being lower than the SP.

As far as margin of safety goes, this has it in spades. Only problem is, I don't know how/when/if the market will recognise that (even if a look-through is provided)


----------



## themeinvestor

CanOz said:


> Great stuff guys, i can't see why an investor wouldn't look at a chart if they thought it might give them a better price at which to buy at...I reckon even Buffet would have guys on his staff that would tell him what good level would be to start accumulating stock based on more than just the fundamentals...Surely.
> 
> Even as Nomadic says, if its only just a change in trend, or a bottom in place...very handy...




I don't believe in Technical analysis per se, but the fact that some people in the market swear by it means you can't ignore it.  I think technical analysis in some ways reflects behavioural economics.

The line on a chart is the sum of the markets fears and hopes.


----------



## Klogg

robusta said:


> *Investment Increased*
> 
> DNA- Donaco
> 
> Bought 2726 @ $0.55 =$1519.36 22/01/15
> 
> So the share price has fallen over 20% from my initial purchase so I picked up some more.
> 
> Needless to say will be very interested in the reason for the trading halt called a couple of hours later.




Robusta - do you still own the shares from the iSentric (ICU) spin-off?
I just finished going through that maze of prospectuses and tax statuses, and found a favourable outcome, so I've recently purchased on market at 18cps. (If management outlined their 'one-off' spin-off costs, it'd be much easier)

Keen to know your thoughts.

EDIT: Sorry, ignore that - just realised you purchased after the spin-off.


----------



## skc

themeinvestor said:


> I don't believe in Technical analysis per se, but the fact that some people in the market swear by it means you can't ignore it.  I think technical analysis in some ways reflects behavioural economics.
> 
> The line on a chart is *the sum of *the markets fears and hopes.




The line on a chart is *the marginal impact *of the market's fears and hopes. i.e. Those who are most fearful or greedy. Sometimes they are right, sometimes they are wrong.


----------



## robusta

skc said:


> Aha... got it. Thanks. I was reading the report and I couldn't get the correct EPS figures by dividing the nubmer of shares on issue.
> 
> Upon further investigation... The ASX quoted shares on issue is 496.767m, while total issued capital has 1172.377m shares. That's how a $87.1m profit gets translated into EPS of ~7.6c. At 50c, market cap is ~$560m and trading at PE ~6.6x. Plus it has very substantial assets on the balance sheet... certainly looks cheap on paper.




It sure does and they have a decent history of growing profits and NTA



Klogg said:


> If they could provide a look-through of the balance sheet, to determine which assets sit in each company, it'd be worth much more. There's about $400m AUD on the books, but if that all sits in the development company, then it's only really 68% owned by UOS.
> Alternatively, if it all were within UOS, then you're getting a lot of the MC in cash, ignoring any UOAREIT holding and investment properties (UOADB).
> 
> However, they do provide an NTA/share of 81c, after accounting for Non-Controlling interests. Even if you discount this for a drop in KL property values, it's hard to see NTA/Share being lower than the SP.
> 
> As far as margin of safety goes, this has it in spades. Only problem is, I don't know how/when/if the market will recognise that (even if a look-through is provided)




I'm with you Klogg, not sure what catalyst will cause a rerating of the sp but i'm happy to hold and find out. From memory the founder is getting on a bit maybe in the future the next generation will try to put some of that mountain of cash to work a bit harder one way or another.


----------



## robusta

Klogg said:


> Robusta - do you still own the shares from the iSentric (ICU) spin-off?
> I just finished going through that maze of prospectuses and tax statuses, and found a favourable outcome, so I've recently purchased on market at 18cps. (If management outlined their 'one-off' spin-off costs, it'd be much easier)
> 
> Keen to know your thoughts.
> 
> EDIT: Sorry, ignore that - just realised you purchased after the spin-off.




Have to admit to not looking at ICU at all, thank you. I will check them out.


----------



## robusta

skc said:


> The line on a chart is *the marginal impact *of the market's fears and hopes. i.e. Those who are most fearful or greedy. Sometimes they are right, sometimes they are wrong.




I could not agree more skc. I have the utmost respect for those that are successful using technical analysis. It's something I've never understood.


----------



## robusta

*Investment Increased*

DNA- Donaco International

2243 shares @ $0.60 = $1345.80 23/02/15

This latest purchase via the rights issue. They should be allocated Monday or Tuesday

Just reading the annual report and have to decide if I'm happy to have so much capital tied up in something this speculative. DNA looks cheap to me and should have decent growth prospects but there is a fair bit of risk...


----------



## robusta

After this post I will probably have to take the word leveraged out of this thread title. We have had a change in our family finances and are now down to one income as a result I have had to raise some quick cash.

So right now on the line of credit we owe $27,737.22

11/3/15

Sold
1412 x EZL @ $1.04 = $1448.53
1220 x ECQ @ $1.08 = $1297.65
1509 x CAM @ $0.93 = $1383.42
2537 x HHL @ $2.30 = $5815.15
627 x MTU @ $9.84 = $6149.73
1380 x VED @ $2.365 = $3243.75
1179 x TGA @ $2.65 =$3104.40
6955 x DNA @ $0.73 = $5057.20
1660 x IPP @ $2.75 = $4545.05
1606 x NVT @ $4.58 = $7335.53

So there goes $39,380.43 in todays fire sale. 

So not happy to be selling but you sometimes difficult decisions have to be made.

The remaining holdings at todays closing prices have a market value of $20,618.84

I will probably have to sell around $10,000 of this tomorrow.


----------



## tech/a

Gee mate 
That's bad news and sudden.
I hope its just the loss of a job and not something more sinister! (Health/Breakup)
Other Jobs are around.

Cant run it as an exercise as if nothing happened?


----------



## craft

Hi Robusta


I see you are making the tough decisions with the same temperament that you have always displayed and I have always admired.

Hope everything works out O.K for you.  Sometimes the biggest challenges turn out to be the biggest opportunities.


----------



## robusta

tech/a said:


> Gee mate
> That's bad news and sudden.
> I hope its just the loss of a job and not something more sinister! (Health/Breakup)
> Other Jobs are around.
> 
> Cant run it as an exercise as if nothing happened?




Thanks mate, everything is ok the Mrs is a bit of a redhead and told her boss to shove it not such a bad thing but her boss was a &$)&&twit. Normal family stuff goting on but the main drama is our joint finances are a shambles. Looks like we have some lessons to learn. You know the complicated ones like spend less than you earn.
Anyway I hope to keep around 10k worth of shares and the use of the line of credit for investing. The plan is still to be a nett buyer of equities over the next 20 years.
The other good news is all of the positions are also held in our super but in much larger quantities so not all is lost.


----------



## tech/a

Great seems you both are all over it


----------



## skc

robusta said:


> Thanks mate, everything is ok the Mrs is a bit of a redhead and told her boss to shove it not such a bad thing but her boss was a &$)&&twit. Normal family stuff goting on but the main drama is our joint finances are a shambles. Looks like we have some lessons to learn. You know the complicated ones like spend less than you earn.
> Anyway I hope to keep around 10k worth of shares and the use of the line of credit for investing. The plan is still to be a nett buyer of equities over the next 20 years.
> The other good news is all of the positions are also held in our super but in much larger quantities so not all is lost.




I hope everything works out well. One door shuts and another opens.

And my sincere congratulations on this thread (whether you continue or not)... almost 1000 posts, 3.5 years in the running, fantastic returns and even more fantastic educational value. Who could forget your losers like MCE and winners like MTU, IPP etc? You have shown tremendous learning, growth and self reflection that is so rare on this forum. Great great stuff.

P.s. Don't forget to budget for capital gains tax!


----------



## So_Cynical

skc said:


> P.s. Don't forget to budget for capital gains tax!




The second thought that came into my mind upon reading the fire sale post, the CGT bill will be substantial...chin up Robusta.


----------



## VSntchr

Best of luck mate, I've thoroughly enjoyed your musings in this thread.
On the bright side, market may tank from here and you can buy it all back for half price in 12 months time


----------



## burglar

VSntchr said:


> Best of luck mate, I've thoroughly enjoyed your musings in this thread.
> On the bright side, market may tank from here and you can buy it all back for half price in 12 months time



+1 
Always thought you were a plucky lil tree frog!

I hope this helps, ...
US DJI falls off a cliff today:
http://finance.yahoo.com/


----------



## galumay

Sorry to hear of your challenges mate, I have always enjoyed reading your thread and whenever its udated i click to have a look. I have picked up some good ideas and found companies to research that had not hit my radar until i saw you mention them. As someone who was made redundant after 20 years with one employer I know the impact that the sudden loss of income can have.

Best of luck and hopefully everything will work out for the best in the long run!


----------



## ROE

Sorry to hear you down to one income, but thing can only get better from the low point.
it seem a little set back and nothing too major for you to continue your investment journey.

sometimes one door is close a better door is open


----------



## robusta

First of all I want to thank everyone for their kind thoughts. There are some other stresses going on in our house but you know what they say what doesn't kill you makes you stronger.

The selling continues...

92 x NVT @ $4.58 =$421.36
2566 x IMF @ $2.33 =$5958.53 

So neatly there all I need is the UOS order filled (thats the one sitting in the market at $0.52) and I will be down to the ~$10,000 of IPP and SRX I would really like to use as the base for the next portfolio.


----------



## KnowThePast

I hope everything works out well in the end, Robusta.

Congratulations on an oustanding thread, I am sure you will be back stronger given time.

Don't stress, it's only money and it's never too late to start again.


----------



## robusta

skc said:


> P.s. Don't forget to budget for capital gains tax!




Yep there will be some CGT to pay this year, got to admit better than having tax losses.



ROE said:


> sometimes one door is close a better door is open




Yep we are looking at making new beginnings in our house.



KnowThePast said:


> Don't stress, it's only money and it's never too late to start again.




Very true, money is only one of the ways to keep score in life.

So hopefully the last sales for a while were on Friday.

Sold 6094 x UOS @ $0.50 = $3027.05

So 3 1/5 years.

I've put a bit north of $9,000 of my money into this portfolio.

Have recently sold $48,787.67 worth of shares.

Owe the bank $27,577,61

So that means I have pulled out $21,210.06 after paying off the bank.

The holdings remaining are;
1456 x CAMO @$.005 = $7.28 (not worth selling)
1910 x IPP @ $2.75 =$5252.50
150 x SRX @ $39.00 = $5850.00

So a "free" portfolio with a market value of $11,109.78

The $30,000 LOC is still available and I would re-enter the market in a flash to re-buy NVT, VED and maybe UOS but will have to make sure the personal cash flow is robust enough to not require a further draw down.

I don't think my abilities are good enough to day trade or momentum trade in the meantime.


----------



## Wysiwyg

I have to say this thread has been refreshing in regards to the general no B.S. theme here at Aussie Stock Forums and for that, respectfully, I wish you a favourable time ahead.


----------



## robusta

Ok so the personal cash flow isn't fixed yet but I've got a few ideas for some extra earnings.

So dipping a toe back into the market.

Bought

Navitas
427 x NVT @ $4.68 = $2018.31

Veda
876 x VED @ $2.28 = $2017.23

There is no way I will leverage up at current prices to the extent this portfolio was before the recent sell down, but if we have a decent correction...

On another point I will have to come up with another way of monitoring the performance going forward. Looking at a percentage return on my contributed equity will no longer work.


----------



## agumby

robusta said:


> After this post I will probably have to take the word leveraged out of this thread title. We have had a change in our family finances and are now down to one income as a result I have had to raise some quick cash.
> 
> So not happy to be selling but you sometimes difficult decisions have to be made.




sorry to hear robusta and fully understand, got made redundant myself with 75 others 5 days ago but have known since October. Totally unexpected back then to us all.

My initial reaction was to sell of 15k of shares and pay off a debt, but then got over the shock and panic and knuckled down with heaps of O/Time and reinvested 10k back into the portfolio, pumped an extra 15k pre tax into super and knocked another 10k of debt down. Now we have to survive on my wifes $500 per fortnight wage my redundancy pay, and a 100k share portfolio for at least 2.5 yrs before centrelink becomes an option. Should be Ok and be able to find another job or only use under 80k of my payout in those 2.5 yrs without touching the share portfolio.

good luck with your situation


----------



## robusta

Wow ive been flat out lately. Just realised an open order was filled of friday and another Mon

I will jut record them and hopefully get back to some of the above comments over easter.

27/3 HHL x 981 @$2.04 =$2021.19

30/2 AWN x 2667 @$0.75 =$2020.20


----------



## valuepack

robusta said:


> Yep there will be some CGT to pay this year, got to admit better than having tax losses.
> 
> 
> 
> Yep we are looking at making new beginnings in our house.
> 
> 
> 
> Very true, money is only one of the ways to keep score in life.
> 
> So hopefully the last sales for a while were on Friday.
> 
> Sold 6094 x UOS @ $0.50 = $3027.05
> 
> So 3 1/5 years.
> 
> I've put a bit north of $9,000 of my money into this portfolio.
> 
> Have recently sold $48,787.67 worth of shares.
> 
> Owe the bank $27,577,61
> 
> So that means I have pulled out $21,210.06 after paying off the bank.
> 
> The holdings remaining are;
> 1456 x CAMO @$.005 = $7.28 (not worth selling)
> 1910 x IPP @ $2.75 =$5252.50
> 150 x SRX @ $39.00 = $5850.00
> 
> So a "free" portfolio with a market value of $11,109.78
> 
> The $30,000 LOC is still available and I would re-enter the market in a flash to re-buy NVT, VED and maybe UOS but will have to make sure the personal cash flow is robust enough to not require a further draw down.
> 
> I don't think my abilities are good enough to day trade or momentum trade in the meantime.




Just tried to do some number crunching and got the following:




*My calculation (not sure if its correct and does not include dividends): (48,787.67 + 11,109.78 - 9,000 – 30,000) Ã· 30,000 = 0.6966

**Couldn’t find a live chart for the ASX Small Ordinaries Accumulation Index, so just used regular index chart which does not include dividends.


Congratulations on beating the ASX 200 and destroying the Small Ords.

Keep up your winning streak!


----------



## galumay

Sorry to nitpick, and it makes no material difference, but the AXJO increased 51% over the time of Robusta's journey, AXJO is the ASX 200 accumulation index and includes dividends.


----------



## robusta

galumay said:


> Sorry to nitpick, and it makes no material difference, but the AXJO increased 51% over the time of Robusta's journey, AXJO is the ASX 200 accumulation index and includes dividends.





Seems like it was a good time to dive into the markets, even better with the boost from leverage.

Anyway back into an ld investment today.

1030 x IMF @ $1.94 = $2018.15


----------



## robusta

valuepack said:


> Just tried to do some number crunching and got the following:
> 
> View attachment 62187
> 
> 
> *My calculation (not sure if its correct and does not include dividends): (48,787.67 + 11,109.78 - 9,000 – 30,000) Ã· 30,000 = 0.6966
> 
> **Couldn’t find a live chart for the ASX Small Ordinaries Accumulation Index, so just used regular index chart which does not include dividends.
> 
> 
> Congratulations on beating the ASX 200 and destroying the Small Ords.
> 
> Keep up your winning streak!




Thank you for that valuepack, there sure was a shaky start to this portfolio. I could only imagine the results if some of those massive early mistakes could have been avoided. Anyway onto new beginnings. Here is a look at the portfolio as it stands today.

*Portfolio Update*

Code.............Qty............Cost ...........Date...............Price................Gain/Loss...........Market Value

AWN.............2,667..........0.757........	30/03/2015......0.750...............	-19.95...............2,000.25	

CAMO...........1,456...........0.000	........17/04/2014......0.002................2.91..................2.91	

HHL................981............2.060........27/03/2015......1.950..............-108.24...............1,912.95	

IMF................1,030..........1.959........08/04/2015......2.010................52.10................2,070.30	 

IPP.................1,910..........0.795........22/04/2013......2.990............4,191.6.................5,710.90	 

NVT.................427...........4.727.........26/03/2015......4.540............-79.73..................1,938.58	

SRX.................150...........9.873.........24/04/2013......22.89..........1,952.55.................3,433.50	

VED.................876...........2.303..........26/03/2015.....2.320..............15.09..................2,032.32	 

................................................................................................. $6006.39............. $19101.71

There is currently $10,036.82 drawn on the LOC and I'm fairly happy with the 'look' of the revised portfolio with a nice mix of growth and dividend businesses. 
However I'm still not sure on the best way to record results going forward.


----------



## robusta

*New Investment*

CAR - Carsales.com

Bought 152 @ $9.82 = $1512.59  21/4/15

I like the stranglehold they have on the Australian market and the Asian growth investments through South Korea and equity holding in ICQ - Icar

I have a buy order in for ICQ as well but the price moved away from me after the record revenue growth announcement today.


----------



## robusta

*New Investment*

ICQ - ICar Asia

Bought 1684 @ $0.89 = $1518.71 24/4/15

Record revenue recently announced last quarter, looks like they are starting to build the network effect.

Hoping to see some profits in 2016


----------



## Miner

robusta said:


> *New Investment*
> 
> ICQ - ICar Asia
> 
> Bought 1684 @ $0.89 = $1518.71 24/4/15
> 
> Record revenue recently announced last quarter, looks like they are starting to build the network effect.
> 
> Hoping to see some profits in 2016




Robusta
Don't know how could I miss your thread for so long considering you commenced in 2011 and looks like consistent. All  season players like SKC , Value Investor et. al commented on your thread shows the value of it.
Now I have put your thread on my automatic notification. It is an excellent thread with clear and concise information . Good work mate.

Back to ICQ and CAR - these two were recommended heavily by Motley Fool. I however noticed services of CAR as an advertiser gets discounted by small value car sellers.  I personally used the service and found useless. A guy came to buy my car told that the car valuation by Car Sales is always 10 to 15% higher side. The purpose of me sharing this to learn from sustainability perspective if credibility is an issue how long CAR and ICQ can sustain? 

Regardless, looking into the scrips you have invested and shared with others, I will be keenly watching these two.
Needless to mention you are doing a great public service (Joe should offer you some gift .


----------



## robusta

Miner said:


> Robusta
> Don't know how could I miss your thread for so long considering you commenced in 2011 and looks like consistent. All  season players like SKC , Value Investor et. al commented on your thread shows the value of it.
> Now I have put your thread on my automatic notification. It is an excellent thread with clear and concise information . Good work mate.




There has been some great contributors on this thread, their input has been priceless to me and hopefully can be useful to others.



Miner said:


> Back to ICQ and CAR - these two were recommended heavily by Motley Fool. I however noticed services of CAR as an advertiser gets discounted by small value car sellers.  I personally used the service and found useless. A guy came to buy my car told that the car valuation by Car Sales is always 10 to 15% higher side. The purpose of me sharing this to learn from sustainability perspective if credibility is an issue how long CAR and ICQ can sustain?




That is interesting I wonder how they come up with their values. Through their network they would have a accurate history of average sales for each make and model. Perhaps they allow a margin for negotiation? I will have to do some 




Miner said:


> Regardless, looking into the scrips you have invested and shared with others, I will be keenly watching these two.
> Needless to mention you are doing a great public service (Joe should offer you some gift .




Now that's a thought, I'm happy to accept cash or beer


----------



## robusta

*New Investment*

CGF - Challenger Limited

Bought 216 @ $6.92 = $1514.67 20/5/15

Looked at this one for a while and avoided because of the exposure to bonds and my general dislike of annuities. But you can't ignore that growing FUM forever and the large and growing market they have almost to themselves.


----------



## kushi212

amazing thread... 
lots to learn for a newbie like me..
congratulations on the amazing investments robusta..
Keep rocking !!
Cheers !!


----------



## robusta

Thanks for that Kushi. hopefully this latest investment will turn out well.

*New Investment*

REA - REA Group

Bought 38 @ $39.88 = $1535.39 28/05/15

Wanted a piece of this one for ages, have watched all the way up from $12.00 in fact. Took me a while to work out how the profits from any growth fall straight to the bottom line and this business is a growth machine. 

Maybe I've paid too much but got to love that network effect. 

Want to buy or rent a house? Well look on realestate.com, thats where the vast majority are listed. 

Want to sell or rent out a house? It would make sense to look where the majority of buyers and renters are looking.

As a bonus the overseas expansion could provide some fantastic upside.


----------



## robusta

*New Investment*

CAM - Clime Capital

Bought 1630 @ $0.92 =$1519.55 4/6/15

This one is not going to shoot the lights out but I can see it compounding at 10% plus well into the future.

I also like the quarterly distributions and will participate in the DRP and can see it paying my utility bills in retirement.


----------



## So_Cynical

robusta said:


> *New Investment*
> 
> CAM - Clime Capital
> 
> Bought 1630 @ $0.92 =$1519.55 4/6/15
> 
> This one is not going to shoot the lights out but I can see it compounding at 10% plus well into the future.
> 
> I also like the quarterly distributions and will participate in the DRP and can see it paying my utility bills in retirement.




Yeah, im watching for an entry as well....same rational as you.


----------



## robusta

So_Cynical said:


> Yeah, im watching for an entry as well....same rational as you.




Yep, management seem to be patient with capital, shareholder friendly and happy to take a longterm view.

Dividend's gone from 1.15 cents / quarter to 1.2 cents / quarter


----------



## Miner

So_Cynical said:


> Yeah, im watching for an entry as well....same rational as you.






robusta said:


> Yep, management seem to be patient with capital, shareholder friendly and happy to take a longterm view.
> 
> Dividend's gone from 1.15 cents / quarter to 1.2 cents / quarter




Folks
May I ask who is your CHESS sponsor ?
With Commsec my SP goes too high after paying a minimum $29.95 to commsec online orders. For a $1000 parcel the SP thus on sale or purchase always goes * down by 2.995 %*.
Look forward to hear back if you please.
Thanks


----------



## So_Cynical

Miner said:


> Folks
> May I ask who is your CHESS sponsor ?
> With Commsec my SP goes too high after paying a minimum $29.95 to commsec online orders. For a $1000 parcel the SP thus on sale or purchase always goes * down by 2.995 %*.
> Look forward to hear back if you please.
> Thanks




HSBC for me, they use the Bell direct platform $15.95 per trade up to 15K.


----------



## VSntchr

Miner said:


> Folks
> May I ask who is your CHESS sponsor ?
> Thanks




If price is your main concern, OpenMarkets is very cheap. Worth looking into. Very good service too, if your interested just give them a call. A few other ASF'ers are clients also.


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## Miner

So_Cynical said:


> HSBC for me, they use the Bell direct platform $15.95 per trade up to 15K.






VSntchr said:


> If price is your main concern, OpenMarkets is very cheap. Worth looking into. Very good service too, if your interested just give them a call. A few other ASF'ers are clients also.




Many thanks So_Cynical and Value Snatcher  for your prompt responses.
I will check out the details and action accordingly

Regards


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## robusta

*New Investment*

BST - Barrack St Investments Limited

Bought 1852 @ $0.81 = $1520.07 25/6/15

Spotted this micro LIC a couple of months ago.


The top 5 investments of the company are:
Carsales 11.5 %
Real Estate Group 10.4 %
Platinum Asset Management 10.2 %
Domino Pizza 9.9 %
Seek Limited 9.8 % 

NTA is around $1.00 per share so from my point of view it could be worth me holding.


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## robusta

Starting to see some opportunity in this market.

*Investment Increased*

Navitas Limited

Bought 360 @ $4.16 =$1517.55

*Investment Increased*

IMF Bentham Limited

Bought 909 @ $1.64 = $1513.87

And yes I will be looking again tomorrow.


----------



## robusta

*New Investment*

XRO - Xero Ltd Fpo

Bought 98 @ $15.39 = $1528.17 !7/7/15

Really, really hard to justify buying this off the numbers.

I've been reading reviews of their software and it looks to me like they have something special. They could be in with a shot of being an international market leader with that lovely sticky recurring revenues.


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## craft

robusta said:


> *New Investment*
> 
> XRO - Xero Ltd Fpo
> 
> Bought 98 @ $15.39 = $1528.17 !7/7/15
> 
> Really, really hard to justify buying this off the numbers.
> 
> I've been reading reviews of their software and it looks to me like they have something special. They could be in with a shot of being an international market leader with that lovely sticky recurring revenues.




http://www.growthpath.com.au/Business-IT/review-of-myob-liveaccounts-and-xero-accounting-in-the-cloud.html

I estimate they will need something around 20% market share in the US to justify current prices. Intuit is a big Gorilla. David and Goliath maybe/hopefully - I haven't got the guts but hope both you and they succeed.


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## sinner

craft said:


> http://www.growthpath.com.au/Business-IT/review-of-myob-liveaccounts-and-xero-accounting-in-the-cloud.html
> 
> I estimate they will need something around 20% market share in the US to justify current prices. Intuit is a big Gorilla. David and Goliath maybe/hopefully - I haven't got the guts but hope both you and they succeed.




Hempton from Bronte Capital on Xero, early last year. Good anecdotes.

http://brontecapital.blogspot.com.au/2014/01/xero-and-precious-petals-of-new-zealand.html


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## robusta

craft said:


> http://www.growthpath.com.au/Business-IT/review-of-myob-liveaccounts-and-xero-accounting-in-the-cloud.html
> 
> I estimate they will need something around 20% market share in the US to justify current prices. Intuit is a big Gorilla. David and Goliath maybe/hopefully - I haven't got the guts but hope both you and they succeed.




Sorry for the tardy reply. Work has been flat out.

I agree looking at the numbers there is no way this one stacks up.

My hope and it is a hope is Zero can become like the Windows operating system of accounting software.

It could be guts it could be stupidity but I know this will be a binary outcome, either loss of capital or a multibagger. I would not make this a large position size.



sinner said:


> Hempton from Bronte Capital on Xero, early last year. Good anecdotes.
> 
> http://brontecapital.blogspot.com.au/2014/01/xero-and-precious-petals-of-new-zealand.html




Thanks for the links.

Even those Fools are confused.

http://www.fool.com.au/2015/07/22/heres-why-i-think-xero-fpo-nz-is-a-sell/

http://www.fool.com.au/2015/07/13/why-i-just-quadrupled-my-holdings-in-xero-fpo-nz/

Here is todays CEO presentation.

http://www.asx.com.au/asxpdf/20150722/pdf/42zyx0yk9mx71p.pdf


----------



## robusta

*Investment Increased*

NVT - Navitas

Bought 369 @ $3.98 = $1488.57

Good long term growth prospects, nice dividend yield now.


----------



## robusta

*Investment Increased*

Got busy and forgot to update this one.

CAM - 22 shares @ $0.894078  DRP 23/7/15


----------



## robusta

*Investment Increased*

ICQ - Icar Asia

91 @ $0.65 = $59.15
SPP about a week ago

*New Investment*

SEK - Seek Limited

Bought 120 @ $12.55 = $1525.95  19/08/15

Held off this one for a long time thinking Linkedin will cut their grass. Having a fresh look at it lately they seem to have the network effect going for them, are happy to invest for long term growth and IMO the Asian business alone could be worth the current market cap within 5 years.


----------



## robusta

*New Investment*
PAF - PM Capital Asia Opportunities 

1338@ $0.92= $1250.91

*New Investment *
HHV - Hunter Hall Global Value

1346 @$1.115= $1520.74

Both of the above are LIC's, decent capital allocators and at a nice discount to NTA
They also have cash to deploy at times like this.
Now I'm fully invested again. Bring on the divedends


----------

