# Time In The Market



## Michael Cornips (6 July 2011)

I was reflecting on the commodity boom Australia has experienced over the decades and wanted to express this performance in terms of an increase in value of buying a share in the resource sector. Of course, this is all with the benefit of hindsight, and probably unlikely to re-occur in the future.

What better analysis than to buy 1000 BHP shares in May 1984 for $14.40 each, for an investment of $14,400?

Over the years the dividends have been re-invested to purchase additional shares, share splits have occurred, and Bluescope Steel was hived off and so was Onesteel Ltd. Cash dividends of $180,000 were paid that were re-invested into buying more BHP shares. Franking tax credits of $77,500 were paid. Depending on your tax rate, the dividends could even be free of additional tax because of the franking tax credits.

As of 1st July 2011 this is what 1000 BHP shares worth $14,400 have become over the 27 years:

22,140 BHP shares valued at $969,067

5,517 Bluescope shares valued at $6,841

3,488 Onesteel shares valued at $6,417

Total $982,200 - 68 times the original investment or 16.8% compounded return.

BHP's performance demonstrates what was right with Australia's economy, and possibly what is now wrong as we face a two speed economy punishing the non-material sectors.

Michael Cornips


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## skc (6 July 2011)

Michael Cornips said:


> As of 1st July 2011 this is what 1000 BHP shares worth $14,400 have become over the 27 years:
> 
> 22,140 BHP shares valued at $969,067
> 
> ...




Something's wrong with your calculations somewhere.

22,140 BHP shares from 1,000 shares over 27 years?! Assuming 2 divdends each year you need to average 6% increase in share number on each dividend payout. I highly doubt that is the case given BHP is never really a big dividend yielder. On last dividend you can just increase your share number by ~1%.

Unless there's a share split or big capital raising that you've included somewhere.

All those dividend numbers also appear to be grossly wrong.


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## So_Cynical (6 July 2011)

Michael Cornips said:


> What better analysis than to buy 1000 BHP shares in May 1984 for $14.40 each, for an investment of $14,400?




Perspective.

$14400 back in 84 was maybe 12% of a nice house, in a nice part of Sydney or 25% of a nice house in South Fremantle or maybe 40% of a nice house in Wagga Wagga....what was a new car worth back then? around 10 or 12K?


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## Michael Cornips (7 July 2011)

skc said:


> Something's wrong with your calculations somewhere.
> 
> 22,140 BHP shares from 1,000 shares over 27 years?! Assuming 2 divdends each year you need to average 6% increase in share number on each dividend payout. I highly doubt that is the case given BHP is never really a big dividend yielder. On last dividend you can just increase your share number by ~1%.
> 
> ...




Fair question, and a good example on how Corporate actions affects historical data.

The data is the result of share splits BHP has done over the years. The data source we use is Iress Market Technology and the Iress Portfolio System which has all Corporate actions such as dividends, share splits, and buy backs etc. 

On the 31st March 1984 the BHP share price was $14.40. The adjusted share price after share splits was $1.32. By 30th June 1984 the adjusted share price fell to $1.04, which would have inflated my results by 30%, if I used that in the example. I preferred to pick the highest monthly share price in 1984 to try and not cherry pick the results.

Here are the share splits:

27th April 1984 - 1:5 Bonus Issue

3rd December 1984 - 2:1 Share Split

26th April 1985 - 1:8 Bonus Issue

3rd Feb1986 - 1:5 Bonus Issue

27th April 1987 - 1:5 Bonus Issue

21th April 1989 - 1:10 Bonus Issue

11th May 1995 - 1:10 Bonus Issue

23rd October 2000 - 1:4 Capital return @.66c by distribution in Onesteel

29th June 2001 - 1.0651:1 Bonus issue for merger of BHP Ltd and Biliton Plc

27th May 2002 -     1:5 in Specie Distribution in BHP Steel

23rd November 2004 -    Off market buyback @ $12.57 ($10.77 Fully Franked Dividend) - Not included in example

24th Feb 2006 -    Off market buyback @ $23.45 ($21.35 Fully Franked Dividend) - Not included in example

12th Feb 2007 -    Off market buyback @ $24.81 ($22.31 Fully Franked Dividend) - Not included in example

25th Feb 2011 -    Off market buyback @ $40.85 ($40.57  Fully Franked Dividend) - Not included in example.

And then we have all the dividend re-investment plans and attached franking credits.

cheers


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## Tysonboss1 (7 July 2011)

So_Cynical said:


> Perspective.
> 
> $14400 back in 84 was maybe 12% of a nice house, in a nice part of Sydney or 25% of a nice house in South Fremantle or maybe 40% of a nice house in Wagga Wagga....what was a new car worth back then? around 10 or 12K?




Even so, most of us here would have much more than a new car or 12% of a nice house invested.


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## Tysonboss1 (7 July 2011)

Michael Cornips said:


> I was reflecting on the commodity boom Australia has experienced over the decades and wanted to express this performance in terms of an increase in value of buying a share in the resource sector. Of course, this is all with the benefit of hindsight, and probably unlikely to re-occur in the future.
> 
> What better analysis than to buy 1000 BHP shares in May 1984 for $14.40 each, for an investment of $14,400?
> 
> ...




The thing that I find so fasinating is that such a record is not un common, there is numerous examples of Australian companies returning decent gains over the years.

One would ask himself how is it possible to lose when investing in such a business, The fact is that alot of money has been lost by people who have danced in and out of companies like BHP, buying in at highs and then selling as the stock corrected, using margin to make speculative short term purchases. etc.


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## wooly1 (7 July 2011)

Tysonboss1 said:


> The thing that I find so fasinating is that such a record is not un common, there is numerous examples of Australian companies returning decent gains over the years.
> 
> One would ask himself how is it possible to lose when investing in such a business, The fact is that alot of money has been lost by people who have danced in and out of companies like BHP, buying in at highs and then selling as the stock corrected, using margin to make speculative short term purchases. etc.




Perhaps there is some merit in buy & hold after all.


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## skc (7 July 2011)

Michael Cornips said:


> Fair question, and a good example on how Corporate actions affects historical data.
> 
> The data is the result of share splits BHP has done over the years. The data source we use is Iress Market Technology and the Iress Portfolio System which has all Corporate actions such as dividends, share splits, and buy backs etc.




Thanks for the clarification I was not aware of all those bonus issues. They don't seem to be nearly as popular these days...


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## ENP (7 July 2011)

Shows the benefits of being invested in an "extraordinary" business doesn't it?


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## Tysonboss1 (7 July 2011)

wooly1 said:


> Perhaps there is some merit in buy & hold after all.




I think so,

Provided the business or asset is a good one, and you purchase it at the right price inactivity will produce better results they hyper active trading.


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## Julia (7 July 2011)

Tysonboss1 said:


> Provided the business or asset is a good one, and you purchase it at the right price inactivity will produce better results they hyper active trading.



It may or it may not.  Too many variables to be able to justify such a generalisation.
Depends very much on the skill of the trader.


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## robusta (7 July 2011)

Julia said:


> It may or it may not.  Too many variables to be able to justify such a generalisation.
> Depends very much on the skill of the trader.




Or the quality of the fundamental analysis


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## So_Cynical (7 July 2011)

Tysonboss1 said:


> Even so, most of us here would have much more than a new car or 12% of a nice house invested.




I brought my first block of land in around 84/5 paid $7500 i think...would of done alot better putting the money into BHP but could of just as easily put the money into Bond Corp or Bell Resources...then where would i be?


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## Wysiwyg (7 July 2011)

Couldn't hurt to have a balance of both long term boring stock investments and exciting speculative stock trading.


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## ROE (7 July 2011)

wooly1 said:


> Perhaps there is some merit in buy & hold after all.




There is always merit in buy and hold of wonderful business ...

The key is good business not any business ...good business mean different things
to different people .. I have a set of criteria if passed it's a good business...

most people think of shares is a piece of paper rarely they think
they part owner of the business ... if you wrap your mind around this 

you see why buy and hold provide extra-ordinary return.

Imagine you own a little shop in a mall, it generate you 20% return on your invested capital each year and provide you with ample cash flow for expansion and what ever 

else you need and it been going good for a few years...then some nut jobs burn down the mall and your business have a little set back and earn you 10% on your invested capital that year .... 

Seeing you down this year your not so good friend becomes a little opportunistic and offer you a low ball figure for your business and pain a bleak picture of the business .... you on the other hand know the business and know that it only a temporary set back.

1. Do you sell your business cheap
2. You hang on and work your way back to glory.

I doubt most people would pick 1 but in the stock market that what you get each day ..sometimes you get extra-ordinary business going cheap ....

when that happen prepare to buy big and hold for a long time.. (as long as the business stack up)

I have a list of business that I know it well and when the time comes and people
panic and exit I buy in.

I still remember the time when fast food got a bit of a bad press because people gone Healthy and so our Dominos pizza friend got punished .. I on the other hand think it's a temporary set back and I come in and hold .... Still I remember CCP debacle from darling to dog but it has one extra-ordinary thing people over look.

a healthy and large automatic payment plan book that can generate it ample cash flow to sort out its problem ... again come in buy and hold...

some years from now I will repeat the same story with QBE ..remember the time when the country was ravage with nature disaster and US treasury bond at 1% and you can buy QBE for $16


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## Tysonboss1 (7 July 2011)

Julia said:


> It may or it may not.  Too many variables to be able to justify such a generalisation.
> Depends very much on the skill of the trader.




I am not talking about trading here, Just talking about buying an interest in a business. If you by a wonderful business at a fair price over time you do not have to trade in and out of it to do well, just sit on it.


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## tothemax6 (8 July 2011)

Michael Cornips said:


> Total $982,200 - 68 times the original investment or 16.8% compounded return.



Whats that inflation-adjusted?


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## Tysonboss1 (8 July 2011)

tothemax6 said:


> Whats that inflation-adjusted?




I think 16.8% return has got inflation covered


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## bob99 (8 July 2011)

Michael Cornips said:


> Total $982,200 - 68 times the original investment or 16.8% compounded return.




Just an initial thought, the first problem with this, and there are many, is that even if we take the most basic of calculations into account it is not worth $982,200 at all!

Depending on when you take CPI from, and how you apply it - there are a few ways, you would have in real terms, applying it to your final figure between $645k and $710k.

However, this should be applied every year, and every qtr, and every month you hold the stock - cant just compound the parts you like, so in fact you are looking at an amount between $518k and $540k.

The problem with the investment world is this sort of fluff, wipe over the surface and you soon see the real world.

Not a bad investment all the same, yet there are a number of other problems with your math.

I'll worry about that when I have the time.


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## Tysonboss1 (8 July 2011)

bob99 said:


> Just an initial thought, the first problem with this, and there are many, is that even if we take the most basic of calculations into account it is not worth $982,200 at all!
> 
> Depending on when you take CPI from, and how you apply it - there are a few ways, you would have in real terms, applying it to your final figure between $645k and $710k.




Yes it is worth $982,200. If you sold it today you would have $982,200 in your bank account. If you put the cash under the matteress you would still only have $14,400 ( if the mice had not eaten those old paper dollars).

Inflation eats away the value of cash, Not the value of real assets, real assets go up because of inflation not lose value due to it.

So by investing in a company that owned real assets your $14,400 went to $982,200 through a combination of inflation, organic growth of the business and reinvested dividends.

Offcourse the $982,200 is not worth as much now as it was in the 80's, but in the 80's you only had $14,400. 

So the fact 3% or 4% of the 16.8%pa was caused by inflation is pretty meaning less.


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## Julia (8 July 2011)

Tysonboss1 said:


> Provided the business or asset is a good one, and you purchase it at the right price inactivity will produce better results they hyper active trading.






Tysonboss1 said:


> I am not talking about trading here, Just talking about buying an interest in a business. If you by a wonderful business at a fair price over time you do not have to trade in and out of it to do well, just sit on it.



But you were indeed talking about trading when you alleged that inactivity will produce better results than hyperactive trading.

This prompted my response that that would depend on the skill of the trader.
Just don't think you can make such a generalisation as you did with validity.


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## skc (8 July 2011)

bob99 said:


> Just an initial thought, the first problem with this, and there are many, is that even if we take the most basic of calculations into account it is not worth $982,200 at all!
> 
> Depending on when you take CPI from, and how you apply it - there are a few ways, you would have in real terms, applying it to your final figure between $645k and $710k.
> 
> ...




Why do you need to apply CPI to the value of the share today? $982,200 is exactly what it is in today's dollar. There is no need to quote shares value in 1984 dollars!

The only thing you can say is that the return after inflation is not quite 16.8% p.a. But that's not what is being claimed.


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## bob99 (8 July 2011)

skc said:


> Why do you need to apply CPI to the value of the share today? $982,200 is exactly what it is in today's dollar. There is no need to quote shares value in 1984 dollars!
> 
> The only thing you can say is that the return after inflation is not quite 16.8% p.a. But that's not what is being claimed.




Why? Because its BS, thats why, you do not have $982,200 at all, you have the figure on paper which is the equiv of this amount, yet you do not have this much in your account in REAL terms.

Why must I have to argue this sort of thing? Really? You would have had to have made in excess of $1.4m to have made this much money, and you have not.

This is not withstanding that the figures themselve dont add up at all. Do the math.


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## Tysonboss1 (8 July 2011)

bob99 said:


> Why? Because its BS, thats why, you do not have $982,200 at all, you have the figure on paper which is the equiv of this amount, yet you do not have this much in your account in REAL terms.
> 
> Why must I have to argue this sort of thing? Really? You would have had to have made in excess of $1.4m to have made this much money, and you have not.
> 
> This is not withstanding that the figures themselve dont add up at all. Do the math.




Firstly just on the highlighted section - Because it's a discussion thread, if you make a statement that others don't understand or don't aggree with they may ask you for clarification, In this way if you are right you may teach them something and if you are wrong you may learn something.

In regards to your comment as a whole, I agree with SKC and don't understand what you mean when you say you have to earn $1.4M to actually earn $982,000.

The point is if you put $14400 in 80's dollars into BHP you would have $982,200 of 2011 dollars. If you put the money under the matteress you would still only have $14,400 of 2011 dollars.


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## Tysonboss1 (8 July 2011)

Julia said:


> But you were indeed talking about trading when you alleged that inactivity will produce better results than hyperactive trading.
> 
> This prompted my response that that would depend on the skill of the trader.
> Just don't think you can make such a generalisation as you did with validity.




Yes, it's been proven in studies that Hyperactive traders in general do worse than their inactive counter parts, the transaction fees get them.

however i aggree it does depend on the skill or luck of the trader, there will always be people with above average results, just like there is some 70 year old smokers.

But remember I did use the term "hyperactivate",


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## mazzatelli (8 July 2011)

Tysonboss1 said:


> Yes, it's been proven in studies that Hyperactive traders in general do worse than their inactive counter parts, the transaction fees get them.




Can you point us to a specific study?
I ask because there is a lot of high frequency/algo trading going on by the banks, hedge funds, MM's etc and many would be contradicting your point above

Usually these studies start off with the assumptions that the portfolios (trading or investing) selections are *random entry*. 
Buy and hold has net positive expectancy over time, but the concern is does it beat inflation. 
Derivatives are negative expectancy and yes its because of transaction fees AND slippage.


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## ROE (8 July 2011)

Tysonboss1 said:


> Firstly just on the highlighted section - Because it's a discussion thread, if you make a statement that others don't understand or don't aggree with they may ask you for clarification, In this way if you are right you may teach them something and if you are wrong you may learn something.
> 
> In regards to your comment as a whole, I agree with SKC and don't understand what you mean when you say you have to earn $1.4M to actually earn $982,000.
> 
> The point is if you put $14400 in 80's dollars into BHP you would have $982,200 of 2011 dollars. If you put the money under the matteress you would still only have $14,400 of 2011 dollars.




Agree with Tysonboss1.. why complicate things when there is no need for it? CPI, Maths calculation? what for?

you have 14K put into a business, that 14K now worth 900K
is there anything else that deliver better return?

Can cash in the bank, under the mattress do better?
Can property do better? Can gold do better? Can Silver do better?
Can CBA do better?

No? then it's a damn good investment..

That the trouble with the world, people complicate things with technical, fancy graphs, maths formula when there is no need for it ...


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## KurwaJegoMac (8 July 2011)

Tysonboss1 said:


> Yes, it's been proven in studies that Hyperactive traders in general do worse than their inactive counter parts, the transaction fees get them.
> 
> however i aggree it does depend on the skill or luck of the trader, there will always be people with above average results, just like there is some 70 year old smokers.
> 
> But remember I did use the term "hyperactivate",




It's also been proven in many studies that inactive investors perform worse than 'hyperactive' ones. 'Hyperactive' traders also generate the bigger returns in a much shorter length of time (have a read about the history of hedge funds and they trump any buy and hold investor in returns - and there are a lot more of them around than Buffets).

The simple fact of the matter is both styles can make fantastic returns. One is not inherently better than the other and to stubbornly oppose that any style outside of your own can be effective is in my opinion, incredibly naive and bigoted.


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## tothemax6 (8 July 2011)

Tysonboss1 said:


> I think 16.8% return has got inflation covered



Agreed, but inflation wasn't always just around 3% though right? I don't know much about Australian history, but weren't there periods of high inflation?


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## tothemax6 (8 July 2011)

KurwaJegoMac said:


> (have a read about the history of hedge funds and they trump any buy and hold investor in returns - and there are a lot more of them around than Buffets).



This is true, the medallion fund is a marvelous example. However, most people are not mathematical geniuses (and besides, even the CEO of the medallion fund started out as a fundamental investor). They think they can profit on short time frames with various TA pattern voodoo - when in fact it requires complicated statistical modeling to offer better than 50/50 outcomes. 
And of course, LTCM proved that even 'bullet-proof' hedged statistical arbitrage can blow up. 

The benefits for a long time frame trader are as follows:

It is profitable if one is good at it: Druckenmiller, Rogers, Buffet etc
It is less time intensive
It lowers transaction costs (more important for small investors)
It is arguably less stressful (but requires more patience)
You are less likely to indulge in squiggle-voodoo


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## Julia (8 July 2011)

KurwaJegoMac said:


> It's also been proven in many studies that inactive investors perform worse than 'hyperactive' ones. 'Hyperactive' traders also generate the bigger returns in a much shorter length of time (have a read about the history of hedge funds and they trump any buy and hold investor in returns - and there are a lot more of them around than Buffets).
> 
> The simple fact of the matter is both styles can make fantastic returns. One is not inherently better than the other and to stubbornly oppose that any style outside of your own can be effective is in my opinion, incredibly naive and bigoted.



What I was trying to say, albeit less effectively.



tothemax6 said:


> Agreed, but inflation wasn't always just around 3% though right? I don't know much about Australian history, but weren't there periods of high inflation?



I clearly remember that in NZ (and I imagine Australia would have not been that different) in the 1980's peaked at almost 20%.
It wasn't all bad news, either, despite paying 22% or so on IP mortgages, in that capital gains on property went through the roof.


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## brty (8 July 2011)

I'm surprised that so many here fall for one of the classic survivorship bias stocks. 

There are many stocks that exist today that have had a remarkable performance in those 27 years. There are many more stocks that have performed poorly or disappeared during the same time period, including many that showed great fundamentals.

The classic example of survivorship bias I like to use is Woolworths. If on the same day in 1984 you had bought $14,000 of Woolworths shares, that particular investment would be worth precisely nothing today, despite there being a company currently listed as Woolworths and holding the assets of the earlier version of it.

The real question is why are some promoters trying to bring this to peoples attention without mentioning survivorship bias??


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## Tysonboss1 (9 July 2011)

mazzatelli said:


> Can you point us to a specific study?
> .




I study done by brad barber and terrance odean divided thousands of traders into 5 catergories based on how often they turned over their portfolio. 

Extremely patient
very patient
patient
impatient
hyperactive

the study found that almost all five groups had exactly the same return before costs they were within 1 percent of each other, after transaction costs though there was a big difference.

Below I list the how much each groups per annum return was reduced by transaction costs.

Extremely patient..... less than 1%
very patient .............1%
patient ....................1.5%
impatient .................3%
hyperactive ..............7%

As a group before transaction costs they beat the market by 0.75%. but after transaction costs all but the Extremely patient failed to beat the market, 

The extremly patient group beat the market by 0.5%.
the hyperactive group underperformed the market by >6% (their brokers are happy though)


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## skyQuake (9 July 2011)

brty said:


> The classic example of survivorship bias I like to use is Woolworths. If on the same day in 1984 you had bought $14,000 of Woolworths shares, that particular investment would be worth precisely nothing today, despite there being a company currently listed as Woolworths and holding the assets of the earlier version of it.




Wow thats really interesting. Can you give some info/links to it?


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## Tysonboss1 (9 July 2011)

Julia said:


> .
> It wasn't all bad news, either, despite paying 22% or so on IP mortgages, in that capital gains on property went through the roof.




Thats the point I always try to get across to people regarding inflation, If you own real assets that have the ability to to raise prices and trade in current terms inflation is no worry to you because the income you receive is likely to increase along with inflation and therefore the capital value increases with inflation.

So in this example, yes some of the growth in BHP value comes from inflation if inflation reduced the value of the dollar by 20%, the price of iron ore they dug from the ground probably increased by 20%.


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## Tysonboss1 (9 July 2011)

brty said:


> I'm surprised that so many here fall for one of the classic survivorship bias stocks.
> 
> There are many stocks that exist today that have had a remarkable performance in those 27 years. There are many more stocks that have performed poorly or disappeared during the same time period, including many that showed great fundamentals.
> 
> ...




Diversification and Benjiman grahams margin of safety will take care of that.

It's funny you mention that the woolworths that went bust had great fundamental, The reason it went bust was because of a speculative takeover and junk bond financing. That should have rang alarm bells.


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## brty (9 July 2011)

> Diversification and Benjiman grahams margin of safety will take care of that.




Exactly correct. both of which means you would not have bought $14,000 worth of BHP shares in 1984 and held through to today. 

$14,000 in 1984 was about 25% of the value of the house I owned. If you are to diversify you would have needed to have a lot of money to be able to invest $14,000 in one stock.

The margin of safety aspect would not have you holding BHP from 1984 to now. On several occasions it looked like BHP did not have that much of a bright future.

Skyquake, Woolies was taken over by Adelaide Steaship in the mid 80's in a paper swap. It consequently went bust and Woolies was refloated by the liquidators, to totally new shareholders.

brty


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## Tysonboss1 (9 July 2011)

brty said:


> 1,Exactly correct. both of which means you would not have bought $14,000 worth of BHP shares in 1984 and held through to today.
> 
> 2, $14,000 in 1984 was about 25% of the value of the house I owned. If you are to diversify you would have needed to have a lot of money to be able to invest $14,000 in one stock.
> 
> 3 ,The margin of safety aspect would not have you holding BHP from 1984 to now. On several occasions it looked like BHP did not have that much of a bright future.




1, Maybe, But there are other stocks that have similar results, even an index fund would have provided a credible return ( not super star though )

2, whether you put in $14,000 or $1,400 or $140,000 the percentage gain is the same. I don't know about you but I have alot more than the value of my house invested so it would have been possible.

3, I don't really agree, I guess it depends on you interpretation of the margin of safty principle and the various forms there of.


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## brty (9 July 2011)

> I don't know about you but I have alot more than the value of my house invested so it would have been possible.




Yes for now, but you were a lot younger 27 years ago, so was I. 27 years ago I was paying off a house and had little to invest relative to the value of a house at the time.

I did have a few thousand dollars invested in a few different stocks at the time. Some were blue-chip, some were speculative miners, they all went bust over time. The reporting of the companies was not as good as today, information was much less reliable and harder to get.

The corollary of the example given by the OP, would be the answer to this question. What "quality stock" today would you be prepared to invest ~$125,000 and keep for the next 27 years, with the assumption you do not have millions to invest?

brty


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## Wysiwyg (9 July 2011)

brty said:


> The corollary of the example given by the OP, would be the answer to this question. What "quality stock" today would you be prepared to invest ~$125,000 and keep for the next 27 years, with the assumption you do not have millions to invest?
> brty



The forum hindsight investors aren't too dissimilar from the forum hindsight traders. The source being we all love to "if". :


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## ROE (9 July 2011)

skyQuake said:


> Wow thats really interesting. Can you give some info/links to it?




WOW wasn't a great company before it was recapitalise
using the metrics for measuring wonderful business WOW would be the one to run away from before it was recapitalises.

it has debt to its eyes ball, it cant meet debt repayment, its return on capital is a shocker.

Recapitalise gives it a clean balance sheet, wipes its history clean and start again and turn it into a Great company ...

people has to learn to only invest in wonderful business and a business drowned in debt in my book isnt


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## mazzatelli (9 July 2011)

Tysonboss1 said:


> I study done by brad barber and terrance odean divided thousands of traders into 5 catergories based on how often they turned over their portfolio.
> 
> Extremely patient
> very patient
> ...




For anyone interested, I am currently looking at the 2000 paper, and this only includes a comparison of RETAIL accounts to trade equities - so mom and dad investors and traders. No derivatives included either e.g. futures, options etc


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## Tysonboss1 (9 July 2011)

brty said:


> Yes for now, but you were a lot younger 27 years ago,
> 
> brty




Yes, I was 2. I am currently 29.


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## skc (9 July 2011)

skyQuake said:


> Wow thats really interesting. Can you give some info/links to it?




Perfect timing. A story on the Adsteam collapse...

http://www.theaustralian.com.au/bus...lence-on-adsteam/story-e6frg906-1226091005132



brty said:


> The corollary of the example given by the OP, would be the answer to this question. What "quality stock" today would you be prepared to invest ~$125,000 and keep for the next 27 years, with the assumption you do not have millions to invest?brty




Very true. 

I can't think of any company that I would be comfortably invest $125K into with the intention to hold for next 27 years. Hell I don't even know I want to put $12.5K into any company for the next 2 years. Things are changing so fast these days it is difficult to make optimistic assumptions.


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## Tysonboss1 (9 July 2011)

skc said:


> I can't think of any company that I would be comfortably invest $125K into with the intention to hold for next 27 years. Hell I don't even know I want to put $12.5K into any company for the next 2 years. Things are changing so fast these days it is difficult to make optimistic assumptions.




I can think of some, and have put amounts similar to that into them. Offcourse It's not a blind buy and hold stratergy, If somthing changed at the company level I may exit


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## ROE (9 July 2011)

I think the general theme for (buy and hold people) is you buy good stocks cheap, you hang around as long as it still a good business and generates adequate return.

You don't buy stock today and sell it next week or next month or even next year.
from my own experience the longer time frame I hold good stocks, the less risky it becomes ..buying stock today and wanting to sell next month is far more risky to your capital...

Valuing and buying a business discount to its intrinsic value takes a time frame of 3-5 years to see the result.

What change in the last decades is people has access to cheap Internet brokerage, instant ticker price and it makes them jumpy and turn over stocks...

The business of selling and buy goods hasn't change much ... Dominos still crank out the same pizza with maybe better ovens, Banks still lend out money at a margin with faster machine, BHP still dig iron ore out of the ground with better machines...

15 or more years ago it was prohibit for anyone to trade stocks and they still doing just fine .....

I remember bought my T1 and Bankwest shares in the 90s .. ...when I sold Telstra and Bankwest for a deposit on the house in 1999 it cost several hundred dollars for a 25K or so worth of share via a broker...

Applied the same cost today, most people wouldn't turn their stock over more than once every few years or unless they need the money for something like a deposit for a house...


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## ROE (9 July 2011)

skc said:


> I can't think of any company that I would be comfortably invest $125K into with the intention to hold for next 27 years. Hell I don't even know I want to put $12.5K into any company for the next 2 years. Things are changing so fast these days it is difficult to make optimistic assumptions.




I'm not mega rich but I have more than that in just 2 stocks... have I sold out? nope? have Greece debt or Japan earth quake make me bail out? nope ... 
will any XXX future event make me exit? Nope... in fact if future X event depress the stock I hold where I think it's undervalue I buy more ...

I will exist when I feel the business no longer generate adequate return....

and as long as I'm in there payment comes twice a year and likely to increase each year.... and the capital growth just inch a little higher each year


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## cynic (10 July 2011)

ROE said:


> will any XXX future event make me exit? Nope... in fact if future X event depress the stock I hold where I think it's undervalue I buy more ...




That's a courageous strategy! Good luck with that!

I wish I could share your confidence in the longevity of corporations (and other entities) in the current financial climate!


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## tinhat (10 July 2011)

Just to clear up the argument about the value of $14,400 today. In 2010 you needed $37,700 to achieve an equivalent purchasing power of $14,400 in 1984.

Calculated using:
http://www.rba.gov.au/calculator/annualDecimal.html


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## ENP (10 July 2011)

cynic said:


> That's a courageous strategy! Good luck with that!
> 
> I wish I could share your confidence in the longevity of corporations (and other entities) in the current financial climate!




Nothing wrong with this strategy. 

As ROE mentioned earlier, what is happening in US, Greece, Japan, anywhere, etc doesn't matter too much.

Take for example Domino's Pizza. Do you think someone on a Friday night coming home late from work is going to say to his friends... "No sorry, I'm unable to join you for a $6 pizza as the Greece Debt crisis has reduced my appetite for pizza"

No that's not what is going to happen, so makes sense to hold the business.


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## robusta (10 July 2011)

I love all this debt crisis, GFC, disaster, chicken little, the sky is falling attitude.


*THIS TOO SHALL PASS*


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## brty (10 July 2011)

tinhat,



> Just to clear up the argument about the value of $14,400 today. In 2010 you needed $37,700 to achieve an equivalent purchasing power of $14,400 in 1984.




While technically correct within the guidelines of official "inflation", what is being discussed is asset appreciation. $14,400 was about 25% of the value of a median priced house in Melbourne in 1984. 

If at the time you were choosing between investments, then we need to discuss the equivalent today, IMHO ~25% of the value of a house.
For example the ~25% of the value of median priced housing rose to nearly double the price of a median house. Median housing rose by ~8.5% pa. 
If we took a starting value of ~$500,000 for a median price house and included 8.5% growth over 27 years we get a value of ~$4.5m. Using your $37,700 we only get to ~2m over 27 years using 16% pa growth, less than half a median house. 

Hence why we need to start with ~25% of the value of a house now to have equal performance. If the future is bleak and deflationary, houses may go no-where for 27 years, but likewise the best companies are also likely to have a much reduced performance than 16% pa in such an environment, ~8% pa would do.

Now is anyone prepared to name ONE company that is worthwhile to invest ~$125,000 today and leave for the next 27 years? 

brty


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## tothemax6 (10 July 2011)

robusta said:


> I love all this debt crisis, GFC, disaster, chicken little, the sky is falling attitude.
> *THIS TOO SHALL PASS*



No ones eyes are where they should be. How is the EU of any relevance to Australia, or even the US for that matter? We are in the 'Asian hemisphere', if you will.

Those issues will not pass, the EU is a basket case, the UK is a husk, and the US is a farce. The most likely scenario for these countries is a drawn-out decline, bear market, and depressed economy. But all this is not important.

China is yet to have a crash in the construction sector, and it will. When that passes, let me know and I will come back to the table.


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## Tysonboss1 (10 July 2011)

brty said:


> tinhat,
> 
> 
> 
> ...




Yes thats right, House prices have are not a good guide to inflation because inflation is just one factor that has caused the growth in the median value. the three main factors are.

1, Inflation, (offcourse)
2, Population Growth (increased density)
3, Better more expensive median ( look at the homes of 1984, Much simpler with out the mod cons)

you could also add a fourth factor, 1984 was just prior to a property boom, 2011 is just after a property boom.


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## Tysonboss1 (10 July 2011)

brty said:


> Now is anyone prepared to name ONE company that is worthwhile to invest ~$125,000 today and leave for the next 27 years?
> 
> brty




I could easily see myself leaving $125,000 in a company for 27years, In 27 years I will be 56 so the timeframe is realistic.

As I stated earlier It would not be a blind 27 year hold though, if somthing dramatically changed I would way up the situation and decide to hold or sell. But I don't buy a company expecting it to run out of steam 1 or 5 or 10 years into the future.

BHP is actually a company I would put in this catergory, It really does have alot going for it that will make it a great businesses to own over time.

1, They have a good mix of long life assets earning a great return on capital invested, in the good years they will earn 25% ROE in the bad years they may earn 10% and probably average 15% over time.

2, The culture of management and directors has the share holders interest at heart and are focused on deploying shareholder capital effiently and returning excess capital to shareholders, in 70 years they have never cut a dividend ( now we have had some badyears during that time)

3, the focus on up stream resource assets create timeless businesses, with complete diversification, every single action that happens in the economy from making cars to making coffee uses thier products regardless of fashions.

Offcourse as I said earlier, I would still be reading every report and annoucement and if an adelaide steamship type situation happened it would be analysed and weighed up.

But a short term economic uncertainy would not make it a candidate for sale.


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## Tysonboss1 (10 July 2011)

tothemax6 said:


> Those issues will not pass, the EU is a basket case, the UK is a husk, and the US is a farce. The most likely scenario for these countries is a drawn-out decline, bear market, and depressed economy. But all this is not important.
> 
> China is yet to have a crash in the construction sector, and it will. When that passes, let me know and I will come back to the table.




Yes, it will pass. It always does. 

World wars,
recessions,
union strikes,
depressions,
terrorist attacks,
natural disasters,
labor governments,
stock market crashes,
nuclear melt downs,
Oil shortages,
disease outbreaks,
Y2K,

etc, etc, etc

The human race doesn't avoid problems, But we always over come them. Always.


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