# Long term blue chip investment



## warrior12 (23 June 2013)

Hi guys. First I'd like to tell you guys a bit about myself then I'll get in to the topic. I am a 20 year that is looking for work but has 10k in the bank, which gives me 35 dollars a month interest. I am going to do blue chips because I want to get comfortable first and get the hang of trading before I start going deeper.


My risk tolerance is very low, I mean I would hate to lose money (I guess we all would) I have no income coming in, so what I lose is what I cant make up for.. 

Blue chips is something I am interested in, big and well known company's wont go bankrupted ( there's always a chance it could go bankrupted but minimizing the risk is important) 

Let's say I bought 10000 dollars worth of either Woolworth, Westfield, or the big four banks and the shares increased in value but decreased a bit, now that would make me go crazy even seeing a decrease sign would make me not be able to sleep at night, but for a noob I think that is normal but for a professional or a well experience person its normal and they can still have a good night sleep. I wouldn't be able to though.
My question is, in the long term would I make a profit I mean I am talking about 10 years + here of holding that share, seeing it increase and decrease and times.

In the long run is it worth it? Am I going to hold on a share for 9 years then see 100% of my 10000 dollars go?
I know some of you will say that its impossible to know what the future holds for these company's or that we cant answer these questions because we don't know what's going to happen in 10 years.
I understand there but what I am asking is regarding a company that has a huge history behind it and has went through hell financially but at the end came back up. company's that we use everyday. 

My goal is to hold on to 4-6 different types of well known blue chip company's for years I am talking 20-30 years and adding more money on to it every month or every year. I save a lot and I give up my social life to do so, I save 95% of my money and did that when I was working before I got laid off. When I do have a job and have these shares (if i have these shares) I would add 2k every month for 20-30 years or whatever. I am not looking to make big money in a short time I want to see my shares go up in value every year or so but is that even possible? 


I know I repeated myself a few times on this but I want to make sure you guy's understand what I am trying to say, Its a bit hard to do so when you're a noob and dont even understand half of the words that investors/traders use haha.


Thank you in advance and i hope to learn a lot from you experienced people.


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## galumay (23 June 2013)

If I were in your position, at your age, I might invest the $10K into just 2 shares that i chose carefully, I would be looking for successful, well managed companies that had a history of growing earnings and had some sort of competitive advantage. Companies that I thought were in sustainable, long term businesses that provided something we need and will continue to need. (supermarkets, banks, etc.).

I would continue to purchase more of each as I had sufficient savings, and I would not look at the price. The price will go up and down with the market, but over time, if i had chosen well, my shares  would have good capital growth, I would have received earnings through dividends to reinvest and compounding of the income and my added savings would have magically created wealth!

You do need the right temperament for a buy and hold strategy to work, you have to ignore the day to day price of the shares, there are only two prices you need to look at, the price you pay to buy and the price you receive if and when you sell, the rest is just noise.

You also have to resist the temptation of activity, its not easy to do almost nothing in the market!

Remember all of the above is just one ignorant persons impressions, opinions and ideas, its not advice and there will plenty happy to explain why what i suggest is nonsense and explain why the opposite makes more sense!

More than anything, read, talk, listen, question, read and read all you can about investing, finance, shares and all related subjects and you will come to your own path in time.


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## springhill (23 June 2013)

warrior12 said:


> Let's say I bought 10000 dollars worth of either Woolworth, Westfield, or the big four banks and the shares increased in value but decreased a bit, now *that would make me go crazy even seeing a decrease sign would make me not be able to sleep at night*, but for a noob I think that is normal but for a professional or a well experience person its normal and they can still have a good night sleep. I wouldn't be able to though.
> My question is, in the long term would I make a profit I mean I am talking about 10 years + here of holding that share, seeing it increase and decrease and times.




If this is the case, then I don't believe the stock market is for you.

No one is going to guarantee you the profit after 10 years that you are seeking. The long term trend indicates that you should gain one, but any number of occurrences that are out of your control during that time period could decimate your investment ie. GFCs, world wars, legislation changes, alien invasion ...... be prepared for anything.

You are obviously not comfortable with the thought of losing money. You should only invest what you are comfortable losing, or can afford to lose.

Are you maximising the interest you could be getting on your $10k? If not research other options in this area.

No investment is worth losing your peace of mind. Losing sleep affects every other facet of your life (socially, work related, communications, family, friends), so may have further reaching consequences than you anticipate.


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## Julia (23 June 2013)

I agree with everything Springhill has said.  Clearly, your $10K is not money you can afford to lose and it would upset you immensely if that were to happen.

I don't think for a moment you could do as Galumay suggests and put it into a couple of so called blue chips and forget it.  (I don't think that's ever a sound strategy, for that matter, even without consideration of your specific need for capital preservation.)

Perhaps spend some time understanding the current and potential global situation.  If you do that, it's my guess you will be even more reluctant to take risks at the present time.

As Springhill has said, worry and losing sleep over investments is immensely damaging especially if you are not currently employed.  I'd much prefer for you to make capital preservation your priority.
Have a look at http://www.infochoice.com.au/?pid=infochoice 
for comparisons of cash rates available, even if you choose this option until the current situation settles somewhat.


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## galumay (23 June 2013)

Julia said:


> I don't think for a moment you could do as Galumay suggests and put it into a couple of so called blue chips and forget it.  (I don't think that's ever a sound strategy, for that matter, even without consideration of your specific need for capital preservation.)




While I suspect you and Springhill are correct, and the OP doesn't really sound like he would be comfortable with any level of share investment, to suggest buy, accumulate, dividend reinvestment and hold is never a sound strategy is odd.

I can think of many examples where that exact strategy with sensibly chosen shares would have led to enormous wealth creation. It does take time and inactivity, and of course it requires careful selection of great companies.

Of course its not a strategy that suits a lot of people, but that doesnt make the strategy itself unsound.


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## francopolli1 (24 June 2013)

galumay said:


> While I suspect you and Springhill are correct, and the OP doesn't really sound like he would be comfortable with any level of share investment, to suggest buy, accumulate, dividend reinvestment and hold is never a sound strategy is odd.
> 
> I can think of many examples where that exact strategy with sensibly chosen shares would have led to enormous wealth creation. It does take time and inactivity, and of course it requires careful selection of great companies.
> 
> Of course its not a strategy that suits a lot of people, but that doesnt make the strategy itself unsound.




+1 
It takes a good amount of trust in your own skills.


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## ktech (24 June 2013)

francopolli1 said:


> +1
> It takes a good amount of trust in your own skills.




At 20 you have time on your side to make up for mistakes BUT with no job you may need that $10k for something more immediate. Try virtual investing first for a time to gain experience and once you have a a regular income you may have sorted out your risk tolerance. I have been investing for 2.5 years and am 56 so relatively green but I certainly got my risk tolerance sorted!! 
Don't feel pressured into committing YOUR money into shares until you absorb the good comments from above posters.


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## VSntchr (24 June 2013)

You have described youtself as an investor with no risk tolerance. As such I beleive you should stick to term deposits or at-call accounts...if you invest in the market its almost certain that you will at times see negative returns.

Have a look at the 10 year charts of some of the companies you consider blue chips. You will find some are higher, some are lower.. also you must consider the dividends paid over this period and the effect of inflation (i.e if BHP was $30 ten years ago, and is still $30 today - that is a loss as inflation should increase your investment at ~3% a year just to break even).


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## Julia (24 June 2013)

galumay said:


> While I suspect you and Springhill are correct, and the OP doesn't really sound like he would be comfortable with any level of share investment, to suggest buy, accumulate, dividend reinvestment and hold is never a sound strategy is odd.



What other strategies have you actually tried, galumay?
Do you think it might be possible that there are other strategies which are way more capital protective as well as protective of profits?

Just look at the last few years.  Prior to the GFC our market peaked at around 6800.  It essentially halved in the ensuing year.  It is still a long way off regaining the previous high.  

Why would you hold your p/f through that when you could simply follow the trend and exit when the downturn began, keeping most of your capital and profits intact?  Most of us are not smart enough to time the exact top or bottom but you can get close.   The cash you released at start of GFC is going to buy you a lot more shares, thus bring in a lot more dividends and franking credits, when those same shares are  half the price.

If your share investing is a sideline or hobby and your cost of living is totally financed by other income such as salary etc, and you can't be bothered taking a more hands on approach, then, sure, buy and hold over a lifetime might work well for you.  I don't, however, consider it a remotely sensible approach if you need to generate a living from your investments alone.  With an invested balance of several million, then yes, probably the dividends and franking are going to allow you to be cavalier about the performance of your capital.  I don't know too many people in such a position where they can afford to see their capital halve, such loss being in no way replaced by said dividends and franking.

You said earlier:



> I would continue to purchase more of each as I had sufficient savings, *and I would not look at the price. *The price will go up and down with the market, but over time, if i had chosen well, my shares would have good capital growth, I would have received earnings through dividends to reinvest and compounding of the income and my added savings would have magically created wealth!



You would not look at the price????  Sorry, but there's no way I could ever agree with that.
Maybe consider the market darlings pre 2008, such as ABC Learning, Allco Finance, et al which were simply obliterated.  Not looking at the price there wouldn't have worked out too well.

Valuesnatcher, good example with BHP and inflation.


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## McLovin (24 June 2013)

Julia said:


> What other strategies have you actually tried, galumay?
> Do you think it might be possible that there are other strategies which are way more capital protective as well as protective of profits?
> 
> Just look at the last few years.  Prior to the GFC our market peaked at around 6800.  It essentially halved in the ensuing year.  It is still a long way off regaining the previous high.
> ...




I agree with you, Julia, you can't blindly ignore price action and ignore fundamentals. However, I think the key paragraph in galumay's post was about carefully selecting a few quality blue chips. Obviously if you approach trading/investing from a technical perspective then business fundamentals aren't so important but if you want to build a quality "buy and hold" portfolio then fundamentals are absolutely necessary. I do think it is achieveable and easier than many might think, IMO. Pre-GFC "buy and hold" was just about getting your money into the market ASAP so you didn't miss out on the gains on offer.


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## galumay (24 June 2013)

Julia said:


> Do you think it might be possible that there are other strategies which are way more capital protective as well as protective of profits?




With respect, thats a strawman argument Julia, I never suggested there were not other strategies, I was challenging your claim that buy and hold is *never* a sound strategy.


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## galumay (24 June 2013)

BTW, i steered away from using specific stocks in my defence of Buy and Hold as a valid strategy for the obvious reason. The use of specific examples like BHP and ABC Learning to challenge my contention go a long way to proving my point that its not helpful to use specific examples.

To illustrate the problem, a counter point is that my Aunt invested a modest inheritance some 40 years ago into BHP, she re invested dividends into BHP, accepted share issues, distributions, whatever else BHP did in those 40 years, she added any savings as she could to the holding, and she held forever. On that single investment she is now a multi millionaire. 

Have a look at the wealth created if you invest in WOW when they float and practice buy & hold with them!

Just like any strategy, with hindsight its possible to find specific examples to demonstrate how successful it can be - and equally other examples to demonstrate how destructive it can be!


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## CanOz (24 June 2013)

galumay said:


> BTW, i steered away from using specific stocks in my defence of Buy and Hold as a valid strategy for the obvious reason. The use of specific examples like BHP and ABC Learning to challenge my contention go a long way to proving my point that its not helpful to use specific examples.
> 
> To illustrate the problem, a counter point is that my Aunt invested a modest inheritance some 40 years ago into BHP, she re invested dividends into BHP, accepted share issues, distributions, whatever else BHP did in those 40 years, she added any savings as she could to the holding, and she held forever. On that single investment she is now a multi millionaire.
> 
> ...




There in lies the problem i have with buy and hold...

Was she just lucky? Or was she well enough informed so that she knew BHP would be a sound business in the future? 

Warren made a ton of good calls early on too, using the brand as well to make those types of decisions. 

With this method though, you must be committed to holding through the market downturns, which have been significant enough in my lifetime already to completely wipe out 401k's...

There is no exit other than bankruptcy in Buy and Hold. There is no way to cut losers short and let winners run.

CanOz


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## Julia (24 June 2013)

galumay said:


> BTW, i steered away from using specific stocks in my defence of Buy and Hold as a valid strategy for the obvious reason. The use of specific examples like BHP and ABC Learning to challenge my contention go a long way to proving my point that its not helpful to use specific examples.



Why not?  Quoting just a few examples demonstrates the point of your imo fallacious suggestion to "never look at what the price is doing".  Countless people have put money into companies they believe they have properly investigated and are convinced they are winners.  The best companies can meet with unexpected headwinds which will see your investment massively reduced.  I would contend that any beginner is unlikely to have the skills to be absolutely right in all instances.

And further on your suggestion that using specific examples is unhelpful, ignore those and just look at the XAO over the time period I've referred to.  It demonstrates my point.  Nearly five years later we are still significantly below the previous high and look like descending well and truly further.



> To illustrate the problem, a counter point is that my Aunt invested a modest inheritance some 40 years ago into BHP, she re invested dividends into BHP, accepted share issues, distributions, whatever else BHP did in those 40 years, she added any savings as she could to the holding, and she held forever. On that single investment she is now a multi millionaire.



And you accuse me of presenting a straw man argument!!!
Whatever results your aunt achieved, what you are ignoring is the potential result of what she could have achieved following a more hands on active approach.  For the reasons I set out earlier, such a trend following or swing trading approach would likely have seen her even more well off.



> Have a look at the wealth created if you invest in WOW when they float and practice buy & hold with them!



Sigh.   Over how many years?  You are apparently so sure of yourself that you are not even considering that a different approach over the same number of years could yield a much better result, given the appropriate education, skills and experience.

I had the vague memory, galumay, that you are a recent entrant to the market, so spent about two minutes to see if I was correct.  I found this from 30 May 2013.


> Its about 4 months since I started this thread and I have done a lot of reading, a lot of research and run a paper portfolio for most of that time.
> 
> *Today I bought my first parcel of shares since starting the thread, $5000 worth of CAB @ $3.91.*
> 
> ...




And this from from February 2013


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




From January 2013


> Yep, I got it too, thats why I decided early on the TA approach wasnt for me. As was pointed out though, thank god for the TA's and the emotional gamblers, without them it would be damn hard to find any value in the market!




And from just a few days ago


> I am amused by your description of TA as black and white, as someone with a mathematical background its more like voodoo to me! The concept defies logic, attemting to predict future events based on historical data is counter intuitive and illogical from a rational perspective.




This last showing a descriptor of TA as "voodoo".  Have you even for a moment considered your opinion is so constructed because you simply do not understand even basic charting?

All up, perhaps consider that when you actually have a few years of experience in the market with real money in real conditions, your dogmatic assurances as to what strategies are valid and what are not might alter somewhat.
On the other hand, maybe not.  People who have, even as beginners, closed their minds to alternative strategies will rarely ever even find out how they could have done better.



CanOz said:


> There in lies the problem i have with buy and hold...
> 
> Was she just lucky? Or was she well enough informed so that she knew BHP would be a sound business in the future?
> 
> ...



Exactly.

Galumay, we all started somewhere.  Probably many of us with the old buy and hold approach.  It works well in a rising market.  
I'm sure you don't mean to come across as claiming to have everything sorted with just a few weeks in the market.
After 25 or so years, even now I'm learning all the time and still make mistakes.


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## galumay (24 June 2013)

Julia said:


> Why not?




For the reasons I gave, I thought pretty clearly?



> And further on your suggestion that using specific examples is unhelpful, ignore those and just look at the XAO over the time period I've referred to.  It demonstrates my point.  Nearly five years later we are still significantly below the previous high and look like descending well and truly further.




Given that my original post in reply to the OP was suggesting a possible long erm strategy for investment by a 20year old starting out, a cycle of 5 years is not really relevant.




> And you accuse me of presenting a straw man argument!!!




I didnt accuse you of it, i pointed out that it was. My relating of my Aunt's experience isnt. 



> Whatever results your aunt achieved, what you are ignoring is the potential result of what she could have achieved following a more hands on active approach.  For the reasons I set out earlier, such a trend following or swing trading approach would likely have seen her even more well off.




Who knows what other potential results of different approaches might have been? For a start its hyperthetical, whereas her dollars are in the bank. Of course another approach MIGHT have worked better, but equally we saw plenty of investors lose their shirts in the same period using other approachs.




> Sigh.   Over how many years?  You are apparently so sure of yourself that you are not even considering that a different approach over the same number of years could yield a much better result, given the appropriate education, skills and experience.




*sigh* Over the number of years since the float. Once again you are using strawman arguments, i never dismissed alternative approachs, i merely suggested in very ambliviant terms a possible course of action I might have chosen if i were that age. Different approaches will have different results, some better, some worse. 



> I had the vague memory, galumay, that you are a recent entrant to the market, so spent about two minutes to see if I was correct.  I found this from 30 May 2013.




A recent re-entrant actually, i lost the lot in the past using a different approach!



> This last showing a descriptor of TA as "voodoo".  Have you even for a moment considered your opinion is so constructed because you simply do not understand even basic charting?.




Actually as I said its my background in mathmatics that makes it impossible for me to have any confidence in it. Its like asking a biologist to suscribe to creation.



> All up, perhaps consider that when you actually have a few years of experience in the market with real money in real conditions, your dogmatic assurances as to what strategies are valid and what are not might alter somewhat.
> On the other hand, maybe not.  People who have, even as beginners, closed their minds to alternative strategies will rarely ever even find out how they could have done better.




Lucky i am not easily offended! "dogmatic" is just about the opposite of my style, might i gently suggest that its not just investment where one needs to understrand the importance of adopting strategies that suit our personalities, that is not to dismiss that alternatives may suit others better.



> Galumay, we all started somewhere.  Probably many of us with the old buy and hold approach.  It works well in a rising market.
> I'm sure you don't mean to come across as claiming to have everything sorted with just a few weeks in the market.
> After 25 or so years, even now I'm learning all the time and still make mistakes.




Julia, I am sure you didnt mean to suggest I have claimed to have 'everything' sorted.

I am going to leave this discussion here, I dont mind explaining my thought processes, but I dont really enjoy this sort of adversarial approach.


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## Joe Blow (25 June 2013)

Just a brief note that I have decided to move this thread from Beginner's Lounge to the Medium/Long Term Investing forum.

Although it is a beginner thread, I feel it is more at home in the Medium/Long Term Investing forum as it is primary concerned with long term investing.


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## Julia (25 June 2013)

galumay said:


> A recent re-entrant actually, i lost the lot in the past using a different approach!






> I dont really enjoy this sort of adversarial approach.




Me neither.  However, when we have the information from the OP that


> I am a 20 year that is looking for work but has 10k in the bank, which gives me 35 dollars a month interest.
> 
> My risk tolerance is very low, I mean I would hate to lose money (I guess we all would) I have no income coming in, so what I lose is what I cant make up for..




then advice to use all of that $10,000 in the market at this very volatile and unpredictable time and *not look at the price* is something I can't help questioning.
If Warrior is unemployed, that $10K should surely be available to him as emergency funds for any unexpected event that might arise.  If he needed money (not too unlikely if he is existing on the unemployment benefit), he could be a forced seller of some shares at a time when the SP was significantly down, incurring the sort of loss he clearly says he would find intolerable.



> and my added savings would have magically created wealth!



And a capital loss could equally magically create loss of what wealth Warrior has.

PS  Warrior, it might not be much, but Rabodirect has at call account offering 4.76% which would give you just under $40 per month, slightly better than your current $35.  Various other options on the infochoice link I provided earlier.
Good luck in your employment quest.


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## sinner (25 June 2013)

Corporate profit margins (which are mean reverting unless capitalism itself is broken) as a % of GDP, near or at all time highs (depending on the economy you examine).

Fundamental ratios near or at all time highs.

Interest rates near or at all time lows.

Given these factors, how is a buy and hold approach expected to generate a nominal return above the rate you get from loaning your money to the bank?

Investing in a buy and hold type approach now, with an expectation of above deposit rate returns, is only a bet that:

* Interest rates stay low or go lower
* Fundamental ratios become even more expensive
* Corporate profit margins take a larger and larger share of GDP (i.e. capitalism is broken)

Which means that if any of those 3 factors don't eventuate, you lose the bet and an almost guaranteed capital loss in real terms.

Using BHP is simply a horrible example, because you'd have to find a small mining company which is set to be an ASX20 company in the future, and then bet that another mining boom of equal or greater magnitude is on its way.


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## CanOz (25 June 2013)

galumay said:


> Actually as I said its my background in mathmatics that makes it impossible for me to have any confidence in it. Its like asking a biologist to suscribe to creation.




Its this part here galumay that really had me stumped. Who do you think designs the complex algorithms that the evil Goldman and JPM employ to beat the market? Voodoo doctors? 

Technical Analysis and algorithmic trading IS based on math and psychology.

CanOz


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## chops_a_must (25 June 2013)

I'm of the opinion everyone needs minimum 10k available to them in case of emergency, illness, job loss, move or whatever.

You've got a great start. I'd continue to save and use anything on top of this for investments/ trades/ girls/ whatever.


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## tech/a (26 June 2013)

> Actually as I said its my background in mathmatics that makes it impossible for me to have any confidence in it. Its like asking a biologist to suscribe to creation.




Doing a lot of work on various trading things with My resident quant (Son ) a Doctor of Physics.
He would disagree with you--as I do.
So would Bruce Vanstone also a Doctor of Mathematics

http://works.bepress.com/bruce_vanstone/

As is Howard Bandy

http://www.blueowlpress.com/

First learn how to trade then apply!

*On topic*

Take whatever trade you wish
Set a stop at B/E and forget
Whats so hard about that?
Buy and hold to your hearts content!


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## Boggo (26 June 2013)

Its as simple as this but 95% of the trading population will probably disagree...

http://www.goldtradingexperts.com/1...ing-financial-markets.html?utm_source=taboola


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## craft (28 June 2013)

galumay said:


> I can think of many examples where that exact strategy with sensibly chosen shares would have led to enormous wealth creation. It does take time and inactivity, and of course it *requires careful selection of great companies*.




Seems a good strategy to me. I think the bolded bit is the key.

Probably not good advice for the OP (but you also pointed that out) If he/she can't handle potential loss then there is no valid strategy for potentially improved returns.


My strategy is buy right - Hold tight. Meaning buy the right company at the right price and then hold tight, disregarding the market price so long as the business stays on track.


I see the usual 2 bob forum experts have lined up to bash you and your long term stock selection strategy up.

Safe to say the mind set to implement such a strategy is different to theirs.  No use arguing the toss - Just smile and wave.


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## tech/a (28 June 2013)

> I see the usual 2 bob forum experts have lined up to bash you and your long term stock selection strategy up.
> 
> Safe to say the mind set to implement such a strategy is different to theirs. No use arguing the toss - Just smile and wave.




Love it!

So forget risk mitigation "Pick the Right stock and she'll be right mate"

Babcock and Brown
ABC learning 
HIH
Lihir Gold.
Blah blah---ohh Wrong stock selection?

Ring a bell-----

Hold as long as you wish just dont hold it lower than your buy point!
But hey do what you like---


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## joku (29 June 2013)

tech/a said:


> Hold as long as you wish just dont hold it lower than your buy point!




:bekloppt:


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## ROE (29 June 2013)

tech/a said:


> Love it!
> 
> So forget risk mitigation "Pick the Right stock and she'll be right mate"
> 
> ...




Absolutely nothing wrong with picking a bad stock as long as you pick WOW CBA ARP DMP FLT MMS CSL CCL and dozen other as part of the mix ... most great business deliver many many multi baggers in the long run...

Nothing wrong picking a couple of wrong stock every so often just like your trade nothing wrong with
having a few loss making trades...

There are many way to make money in the market... No point quacking other because they don't follow a certain technique....


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## craft (1 July 2013)

tech/a said:


> Love it!
> 
> So forget risk mitigation "Pick the Right stock and she'll be right mate"




I'm not for a second suggesting to forget risk mitigation – but the bit you have in quotes is exactly right – risk mitigation is done thought analysis and selection of the business you invest in.




tech/a said:


> Babcock and Brown
> ABC learning
> HIH
> Lihir Gold.
> ...




You can throw as many dog stocks up as you like to undermine the strategy but you are picking stocks that most decent fundamental analysts can quite easily side step.

Personally, I have never held any of those stocks – I have never held a stock that has gone bankrupt and I have been investing right through the period when these companies failed.

As ROE points out the upside for good stocks is many multiples of your buy price, the downside is limited to 1 but picking good companies at cheap prices you will probably never come close to a 1R loss – I certainly haven’t.  The built in asymmetric risk/reward gives you a great expectancy.

The strategy is truly scalable and best of all requires next to no screen time, so you can sit on the beach instead of in front of a screen.


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## tech/a (1 July 2013)

While you all believe Im at direct logger heads on this Im not.

All Im pointing out is that I cant see the point in 3 things.
(1) Buying at anytime then hanging on. (No care for timing)
(2) Timing by buying as a stock falls in price. (Averaging Down.)
(3) Holding a stock beyond a breakeven point.

I just think with a little effort you can do it much better.

By the way at the height of those stocks I offered up as examples 
certaintly werent seen as dogs then!
NCM currently is seen by some as the bargain of the century ----is it?


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## boofis (1 July 2013)

craft said:


> The strategy is truly scalable and best of all requires next to no screen time, so you can sit on the beach instead of in front of a screen.




What's the strategy sorry? I think I missed this.


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## sinner (1 July 2013)

tech/a said:


> I just think with a little effort you can do it much better.
> 
> By the way at the height of those stocks I offered up as examples
> certaintly werent seen as dogs then!
> NCM currently is seen by some as the bargain of the century ----is it?




tech, one thing I've been curious about recently is why you seem to be OK with the idea of buying a cashflow positive investment property and holding for the long term, but you're also very against the idea of buying a cashflow positive business and holding for the long term?

Not having a go, just kind of curious about where the difference lies for you, because when it comes to property you are much more FA oriented, never have I seen you post a chart of real housing returns and the associated wave count.


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## tech/a (1 July 2013)

sinner said:


> tech, one thing I've been curious about recently is why you seem to be OK with the idea of buying a cashflow positive investment property and holding for the long term, but you're also very against the idea of buying a cashflow positive business and holding for the long term?
> 
> Not having a go, just kind of curious about where the difference lies for you, because when it comes to property you are much more FA oriented, never have I seen you post a chart of real housing returns and the associated wave count.




Haha I wish----

Ok
*Unlike Property we have the ability to sell a stock with a phone call.*But Im happy to put as much in a stock which returns a good dividend and doesnt erode my capital preferably increases it. Initially I was leveraged 4:1

Your arguement is that my capital can be eroded in property yet I hold---valid and its happened---but I havent bought more property!

Unfortunately I cannot sell property and then buy it back again in 10 mins like I can do with stocks.

What I can do and have done for the last 10 yrs is off load debt (Liability of) which although not perfect means Im maximising return. Ive also kept the best--well in my opinion.

But to be honest the biggie was savings (tax) within my Company and Superfund when I bought my own Industrial property back when you could get $100K each into Super 2 years in a row--think it may have been $150K---

I just reciently sold a vacant block (Industrial) for a $15k loss. No point in no income from that!

I want the diversification as well.

But In my view stock can be far more rewarding if you play your $s right. Now that we dont have those concessions available.


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## pavilion103 (1 July 2013)

The one thing I've struggled with is understanding why some people I know buy a stock while it is falling (because it is cheap/represents value). Then being happy that it is falling because they can buy more.

I've always thought that its great to identify these great value opportunities but why not maximize the timing of entry? Wait for bottoming out behavior and then you give yourself the best chance of buying at the best price without missing the opportunity.

The fundamental approach may be great but why not combine is with the technical to improve entry (and exit).


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## joku (2 July 2013)

pavilion103 said:


> The one thing I've struggled with is understanding why some people I know buy a stock while it is falling (because it is cheap/represents value). Then being happy that it is falling because they can buy more.




Because fundamental investors believe there is a disconnect between price and value. If they are right they should only be disappointing when value drops. When Prices drop and values either stay steady or rise this could be considered positive so long as they weren't planning on liquidating any time soon and have extra capital available - planning/needing to sell in the short/medium term regardless of future valuation and price changes doesn't fit well with fundamental investing it's a recipe for failure really. In the long run if you can stick to your guns and so long as you are better than average at guessing value it all works out when combined with margin of safety (buying below your valuation to skew returns/probabilities in your favour) and sensible allocation strategies (reducing the risk of being wiped out by statistically unlikely events).



pavilion103 said:


> why not maximize the timing of entry? Wait for bottoming out behavior and then you give yourself the best chance of buying at the best price without missing the opportunity. The fundamental approach may be great but why not combine is with the technical to improve entry (and exit).




You make it sound like bottoming out behavior is obvious yet studies tend to show that traders on average lose LOTS of money so it can't really be that easy at least not for most people. Anecdotally I witness thousands of accounts where this is also true. None of that makes it impossible but clearly you need something that sets you out from the pack along with sound plans for mitigating risks etc *just like fundamental investing*. 

As for combining both strategies.. well if you can come up with an overall plan that works this way then good for you. Personally I don't entirely ignore charts in my fundamental investing, just 99% : I do a small amount of trading too btw and the rules I trade by are very different and in some ways opposite to my fundamental investing rules - that doesn't make either of them wrong it depends on how they fit within the overall investment plan. Sometimes you're required to give up a little to gain a lot. I would love to see you sit in front of Buffet and tell him there's these blatant holes in his strategy.


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## craft (2 July 2013)

joku said:


> Because fundamental investors believe there is a disconnect between price and value. If they are right they should only be disappointing when value drops. When Prices drop and values either stay steady or rise this could be considered positive so long as they weren't planning on liquidating any time soon and have extra capital available - planning/needing to sell in the short/medium term regardless of future valuation and price changes doesn't fit well with fundamental investing it's a recipe for failure really. In the long run if you can stick to your guns and so long as you are better than average at guessing value it all works out when combined with margin of safety (buying below your valuation to skew returns/probabilities in your favour) and sensible allocation strategies (reducing the risk of being wiped out by statistically unlikely events).
> 
> 
> 
> ...




Great Post.

- - - Updated - - -



pavilion103 said:


> The one thing I've struggled with is understanding why some people I know buy a stock while it is falling (because it is cheap/represents value). Then being happy that it is falling because they can buy more.
> 
> I've always thought that its great to identify these great value opportunities but why not maximize the timing of entry? Wait for bottoming out behavior and then you give yourself the best chance of buying at the best price without missing the opportunity.
> 
> The fundamental approach may be great but why not combine is with the technical to improve entry (and exit).




I wouldn’t suggest you add fundamental considerations to your trading. Trying to respond to two different masters who are dictating two different actions at the same time will kill you ability to act. The edge of either is cancelled by the other. 

If you can understand the rational for not adding valuation considerations to your trading then the flip side is the answer to your post.

Of course some people just chase prices down and justify their actions with flimsy valuation arguments - Do us a favour though and don't just lump us all into the same FA basket like some do.


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## CanOz (2 July 2013)

Check out this from another fellow Canadian...



> PurpleChips uses a visual approach to illustrate clearly where investment opportunities exist. Using the research method, investors will learn to identify exceptional companies with a quick visual inspection of certain factors in their earnings history. PurpleChips gives the average investor the tools to make decisions and focuses on quality, low-risk stocks.




I like his style of investing, he actually gets out when he is wrong, according to the Bloomberg interview last night. He was saying that if the reasons for him investing in the first place change, then something has gone wrong and he'll exit, he doesn't hold onto losers in the "value" sense. I think this is important for new investors to know, you don't need to hand on and hope...

I'm sure there will be no ahh haa moments with Ves, Craft, McLovin and the other value investors here, but i thought the interview was good and worth posting some links here.

Cheers,


CanOz


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## McLovin (2 July 2013)

CanOz said:


> He was saying that if the reasons for him investing in the first place change, then something has gone wrong and he'll exit, he doesn't hold onto losers in the "value" sense. I think this is important for new investors to know, you don't need to hand on and hope...




I think if you're not getting out when things change (and doing it fast!) then you're not really investing just hoping. And there's always plenty of hope going around! People seem to get married to positions, where admitting they're wrong seems to hurt more than the real money they're losing. The psychology of it is something I'm only now starting to appreciate.


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## CanOz (2 July 2013)

McLovin said:


> I think if you're not getting out when things change (and doing it fast!) then you're not really investing just hoping. And there's always plenty of hope going around! People seem to get married to positions, where admitting they're wrong seems to hurt more than the real money they're losing. The psychology of it is something I'm only now starting to appreciate.




Yeah, the other thing he says which is very true is that most people like to be right more often , and take smaller gains. This is absolutely true of the majority and its the reason why trading systems with high win rates sell better than trend following systems with higher draw-downs...its human nature. Ideally of course, a short term MR system for income and a long term TF system for growth should be emplyed in my view.

Value investing is a little of both in some respects as you get income from the divies...

Anyway, maybe someone will read the book and give a review, might be good for some of the newer value investors here that tend to hope a little more than they should.

CanOz


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## themeinvestor (5 February 2015)

OK, so here's my view.

In some ways, for a retail investor, the hard work is done for you.

There are a lot of talented, highly paid, well informed bottom-up investors out there (including the bots and algorithms).  They are setting the prices, and staking their reputations on it.  

For every one of those guys who gets it wrong, or slightly wrong, there is another one who gets it right.

True (large) pricing errors (based on information in the market) for large, well researched, well run, companies must be few and far between.  

My view is that the theme, the macro, is more important.  It will tell you when to get in, and when to get out.

The Chinese are building apartments and infrastructure?  Buy BHP.  The Chinese aren't building as much?  Hold or sell BHP.

It's the theme retail investors should concentrate their energy on when they are investing in large caps.

Any thoughts?


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## galumay (5 February 2015)

themeinvestor said:


> True (large) pricing errors (based on information in the market) for large, well researched, well run, companies must be few and far between.
> 
> My view is that the theme, the macro, is more important.  It will tell you when to get in, and when to get out.
> 
> Any thoughts?




Ok, I will bite, the evidence throughout history is the opposite, large pricing errors in every strong bull market and the same in every bear market. The 'experts' mainly aligned with the mis-pricing. Plenty of studies into the effect and the psycology that makes this so.

Macro picture has a habit of changing quickly and irrationally, notice the oil price recently? See many tipping that coming? Getting in and out is problematic, it looks easy in hindsight, but unless you are endowed with a lot of luck all you do is miss the highs and miss the lows. Again plenty of studies showing how you only need to be out of the markets a surprisingly few days out of years to miss the best increases. I think Peter Lynch has some good stuff on that in his books from memory.

Most long term investors that I have studied actually suggest the opposite view - ignore the macro and just concentrate on buying quality companies.


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## ottg (22 February 2015)

galumay said:


> Most long term investors that I have studied actually suggest the opposite view - ignore the macro and just concentrate on buying quality companies.




Perhaps the questions is how do I determine what is a quality company. Many fundamentalists may have a different opinion on how to determine that until we dive into the detail. For example by looking at intrinsic value, gilt relative value, earnings growth rates, dividend yields etc is all good but do you have to weigh them and by how much? How do you compare them - as a group or by market capitalisation size and/or in the same market segment?


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