Buy and hold vs. active portfolio management

[Value Collector]

I increased my FMG holding today, I think once we are over the price drop shock, and FMG again demonstrates it’s earning power at sub $100 Iron Ore the shares will be worth a lot more.

Of course in the mean time there may well be choppy waters, but that can largely be ignored if you have a long holding period.

 

[tech/a]

I increased my FMG holding today, I think once we are over the price drop shock, and FMG again demonstrates it’s earning power at sub $100 Iron Ore the shares will be worth a lot more.

Of course in the mean time there may well be choppy waters, but that can largely be ignored if you have a long holding period.

i understand where you are coming from personally.
I think it was you that purchased 20000 of these at around $9 and as I saw prices move to $20+
thought it was an excellent decision. but as you know i just cant swallow giving back $200k

i see two issues in front of FMG
(1) it needs a market
(2) The AUD is likely to rise long term.

 

[Value Collector]

i understand where you are coming from personally.
I think it was you that purchased 20000 of these at around $9 and as I saw prices move to $20+
thought it was an excellent decision. but as you know i just cant swallow giving back $200k

i see two issues in front of FMG
(1) it needs a market
(2) The AUD is likely to rise long term.

I did purchase some at $9 but the bulk of my holding is 200,000 shares purchased less than $3, and with the last 2 dividends they have more than returned the $3 to me.

I know you are more a a trader, and as such the daily swings up and down in the market make you feel richer or poorer by the hour, but that’s not how I view it at all.

I really measure my personal wealth by how I feel about the underlying assets I own, not the market price they are trading for at any minute.

I think of it more like buying a farm, and making the investment based on how much corn will be produced on average per acre, sure the price of corn will fluctuate and some times their will be a drought, but the daily price per acre of farmland doesn’t really affect you unless you are planning on buying or selling that day.

if you business is based around trading acres of farmland regularly you care, but if your business is growing corn you don’t care.

 

[tech/a]

I did purchase some at $9 but the bulk of my holding is 200,000 shares purchased less than $3, and with the last 2 dividends they have more than returned the $3 to me.

I know you are more a a trader, and as such the daily swings up and down in the market make you feel richer or poorer by the hour, but that’s not how I view it at all.

I really measure my personal wealth by how I feel about the underlying assets I own, not the market price they are trading for at any minute.

I think of it more like buying a farm, and making the investment based on how much corn will be produced on average per acre, sure the price of corn will fluctuate and some times their will be a drought, but the daily price per acre of farmland doesn’t really affect you unless you are planning on buying or selling that day.

if you business is based around trading acres of farmland regularly you care, but if your business is growing corn you don’t care.

yes I do hear you
But we are definitely wired differently
Giving back 2 million in 3 mths isn’t in my DNA

 

[Value Collector]

yes I do hear you
But we are definitely wired differently
Giving back 2 million in 3 mths isn’t in my DNA

You see I don’t feel I have given anything back, I still own the same mining assets in the Pilbara, and I believe they are worth more than the price I could have sold them for 3 months ago, and am happy to continue holding banking the income they generate, while I wait for their true value to be recognised, I don’t feel poorer just because the market disagrees with me temporarily.

if I had of had a trading mentality, I am sure I would have sold out multiple times between $3 and $25, I might have even “cut my losses when they dropped to $1.70 after I bought them for $3.

I doubt I would have timed all the trades between $3 and $25 perfectly, I would have missed some of the run ups, missed some dividends, paid extra trading fees and taxes etc, that all affects the compounded return I could have achieved, and wiped out the $2million you say I have handed back, those missed returns get hidden because the don’t show up on a balance sheet, but are very real, and could easily out weigh the recent drop in market price of my holding.

My strategy works for me, if what you do works for you good, if anything the wild fluctuations caused by traders and short term thinkers is what has allowed me build my fortune, I think if I allowed my self to fall into short term thinking it would not only decrease my over all return over time, but it would force me into a more hyper active management style which I would enjoy, and it would have a negative affect on my stress levels and life style.

 

[notting]

You took in a lot of tax free dividends over that time too

You see I don’t feel I have given anything back, I still own the same mining assets in the Pilbara, and I believe they are worth more than the price I could have sold them for 3 months ago, and am happy to continue holding banking the income they generate, while I wait for their true value to be recognised, I don’t feel poorer just because the market disagrees with me temporarily.

if I had of had a trading mentality, I am sure I would have sold out multiple times between $3 and $25, I might have even “cut my losses when they dropped to $1.70 after I bought them for $3.

I doubt I would have timed all the trades between $3 and $25 perfectly, I would have missed some of the run ups, missed some dividends, paid extra trading fees and taxes etc, that all affects the compounded return I could have achieved, and wiped out the $2million you say I have handed back, those missed returns get hidden because the don’t show up on a balance sheet, but are very real, and could easily out weigh the recent drop in market price of my holding.

My strategy works for me, if what you do works for you good, if anything the wild fluctuations caused by traders and short term thinkers is what has allowed me build my fortune, I think if I allowed my self to fall into short term thinking it would not only decrease my over all return over time, but it would force me into a more hyper active management style which I would enjoy, and it would have a negative affect on my stress levels and life style.

You took in a LOT of tax free dividends over that time too. On a stock like FMG that's a big deal. The last one was about the size of what you originally paid! Evens the ledger a bit especially when you take into account capital gains tax's that trend following this one would have cost you at various times.
People have forgotten that FMG was so cheap in the first place because of a debt issue which it now doesn't have. It's gotta be worth $20 regardless.
Then this this.

"Macquarie researchers have an outperform rating on all three stocks BHP RIO FMG, saying in a note to clients that they remain positive on companies with iron ore exposure.
The equities team said systemic risks caused to the iron ore price by property developers in China are low, and that if you look at the shipping volumes of Australian iron ore miners during September, the numbers are actually increased."
I've been buying a bit of them all and will wait for the MACD cross to go harder.
I'm glad you never sold Value Collector I worried I might have put you off when we had our conversation that I remember fondly.!

Tech/a's input is fantastic as usual tho I find. Just remember tho you would have to have made far more than the 2 million to have it to give back! Which according to technical alone let alone it's necessary accompanying positions sizing for that strategy to work is highly unlikely.

 

[tech/a]

I did purchase some at $9 but the bulk of my holding is 200,000 shares purchased less than $3, and with the last 2 dividends they have more than returned the $3 to me.

I know you are more a a trader, and as such the daily swings up and down in the market make you feel richer or poorer by the hour, but that’s not how I view it at all.

I really measure my personal wealth by how I feel about the underlying assets I own, not the market price they are trading for at any minute.

I think of it more like buying a farm, and making the investment based on how much corn will be produced on average per acre, sure the price of corn will fluctuate and some times their will be a drought, but the daily price per acre of farmland doesn’t really affect you unless you are planning on buying or selling that day.

if you business is based around trading acres of farmland regularly you care, but if your business is growing corn you don’t care.

Some of the most dangerous financial thinking I’ve ever seen.

I trade,I invest,I run a company.In every endeavour the goal is profit.

If I had your farm had a bumper crop and watched it rot rather than reap it
I’d be a crap farmer .I’d fail to farm. I’d still have the farm.I’d be negligent.

From day to day your liquidated value of all your assets is your net wealth.
if you see FGM fall $1 on your 200,000 shares you just watched $200,000
wiped off your net wealth it’s YOUR money.

That 2 million you left un reaped could today buy another 200,000 FMG and have
given you the opportunity of reaping 400,000 future dividends.

Sorry V/C but I fail to see any logic in your stance. It really does leave me speechless.
( not quite ).

Holding the view that you haven’t lost anything because you still own 200,000 share regardless of market value is the mantra of the failed trader who sticks trade after trade in the bottom draw.

If you or anyone else seriously thinks this way ya gotta fix it!

 

[KevinBB]

Hello @tech/a

I think you're being a bit tough on @Value Collector .

There are many investors who buy into a business as a long term investment. Some even use their own funds to start their own business. They could own a small percentage of that business, or be the sole proprietor. They are in it for the long term, to reap benefits down the track, which could be many years away.

Not everyone is a trader, as you seem to be. You have found your niche, and from the quality of your posts I see here on this forum, you seem successful at what you do. Congratulations.

However trading isn't for everyone, me included.

KH

 

[notting]

Hey tech/a Why don't you give template example of how you'd have played it from $3 using a designated technical buy signal and trailing stop loss. I suspect there would be at least 3 entries and stop losses from then for you. Be interesting to see how much you make compared to having held a pretty incredible stock with ff divs included.
Note there is 12 div payments since that time probably giviing back tax free more than 7% plus franking credits per annum.

 

[tech/a]

Hello @tech/a

I think you're being a bit tough on @Value Collector .

There are many investors who buy into a business as a long term investment. Some even use their own funds to start their own business. They could own a small percentage of that business, or be the sole proprietor. They are in it for the long term, to reap benefits down the track, which could be many years away.

Not everyone is a trader, as you seem to be. You have found your niche, and from the quality of your posts I see here on this forum, you seem successful at what you do. Congratulations.

However trading isn't for everyone, me included.

KH

Kevin
It appears I have this new label of trader

I too hold long term Share portfolios
Hold properly
Own my own company and portions of 2 others

So don’t pigeon hole this duck
My statement above is not meant for those who don’t get it
Those that do will see it clear as day

V/C let a 2 million windfall pass by in the name of long term investment and dividends.
It may not ever happen again
Hiinvestment will take years to re coup that 2 million and may never recoup it.
The opportunity of realising THAT windfall is long gone.

It just a very flawed strategy
Fluctuations sure
Watching as an investment halves
That’s just not smart

 

[tech/a]

Hey tech/a Why don't you give template example of how you'd have played it from $3 using a designated technical buy signal and trailing stop loss. I suspect there would be at least 3 entries and stop losses from then for you. Be interesting to see how much you make compared to having held a pretty incredible stock with ff divs included.

Notting
I already have
I saw this at $24 never looked at FMG.
I called the play then
I’ve already shown the two things I’d have done if it was my 2 million in reply to V/C

Anyone who lets 2 mill slide like that needs a reality on investment check
Sorry!!

 

[over9k]

Notting
I already have
I saw this at $24 never looked at FMG.
I called the play then
I’ve already shown the two things I’d have done if it was my 2 million in reply to V/C

Anyone who lets 2 mill slide like that needs a reality on investment check
Sorry!!

To play devil's advocate here duck, if you had 2 mil in FMG, would you have been confident enough in your analysis that you posted to have bailed when you said to/said you would have?

I wouldn't personally have had 2 mil in FMG alone but that's a different discussion.

I've been pretty confident of my own analyses in the past but confident and 2 million of my own money confident are two different things.

I've never made a single trade over 5 figures.

 

[notting]

To play devil's advocate here duck, if you had 2 mil in FMG, would you have been confident enough in your analysis that you posted to have bailed when you said to/said you would have?

I wouldn't personally have had 2 mil in FMG alone but that's a different discussion.

I've been pretty confident of my own analyses in the past but confident and 2 million of my own money confident are two different things.

I've never made a single trade over 5 figures.

Tech/a knows how to manage risk. He would definitely have gotten out.

 

[notting]

Notting
I already have
I saw this at $24 never looked at FMG.
I called the play then
I’ve already shown the two things I’d have done if it was my 2 million in reply to V/C

Anyone who lets 2 mill slide like that needs a reality on investment check
Sorry!!

Sorry I missed that.
All I saw was a chart anticipating a bottom at around 15 with a bounce then a possible fall to 8-10. No trades! No money made.

 

[tech/a]

Sorry I missed that.
All I saw was a chart anticipating a bottom at around 15 with a bounce then a possible fall to 8-10. No trades! No money made.

So I called it in real time
not good enough for you
YET you want me to mark up a theoretical FMG trade chart
in hindsite
Strange.
Ive made my point on with the FMG saga.

 

[Value Collector]

Some of the most dangerous financial thinking I’ve ever seen.

I trade,I invest,I run a company.In every endeavour the goal is profit.

If I had your farm had a bumper crop and watched it rot rather than reap it
I’d be a crap farmer .I’d fail to farm. I’d still have the farm.I’d be negligent.

From day to day your liquidated value of all your assets is your net wealth.
if you see FGM fall $1 on your 200,000 shares you just watched $200,000
wiped off your net wealth it’s YOUR money.

That 2 million you left un reaped could today buy another 200,000 FMG and have
given you the opportunity of reaping 400,000 future dividends.

Sorry V/C but I fail to see any logic in your stance. It really does leave me speechless.
( not quite ).

Holding the view that you haven’t lost anything because you still own 200,000 share regardless of market value is the mantra of the failed trader who sticks trade after trade in the bottom draw.

If you or anyone else seriously thinks this way ya gotta fix it!

As I said we are not likely to agree, you do what works for you, and I will do what works for me.

As I said if I had a thought process more like you, I don’t think I would have held from $3 to $25 in the first place, and I certainly wouldn’t have made the big value bets to begin with.

I have made my way by focusing on value, eg finding value and buying it, not through hyper active management.

In the farm example. FMG’s mines are the farm, the Iron Ore is the corn, and the share price is the farm price, I am not letting the crop rot in the field, we are shipping it to China and making decent cash flows doing it.

 

[Value Collector]

Kevin
It appears I have this new label of trader

I too hold long term Share portfolios
Hold properly
Own my own company and portions of 2 others

So don’t pigeon hole this duck
My statement above is not meant for those who don’t get it
Those that do will see it clear as day

V/C let a 2 million windfall pass by in the name of long term investment and dividends.
It may not ever happen again
Hiinvestment will take years to re coup that 2 million and may never recoup it.
The opportunity of realising THAT windfall is long gone.

It just a very flawed strategy
Fluctuations sure
Watching as an investment halves
That’s just not smart

I have actually watched plenty of my investments half in value, it’s no biggy, FMG has done it a few times in the last 8 or so years I have been investing in them.

As I said before I watched FMG drop from $3 to less than $1.5, the then recovered to $6 but later dropped to $3, the recovered back to $12.50 but later dropped to $8.50, etc etc all the why you to $25, this recent fall is just another cycle.

It’s not limited to FMG at all, I bought CBA at $12.50 watched them rise to $50 and then watched them fall to $23, watched them recover to $90 before watching them drop to $75 they are now $104, but owe me nothing because they have paid about $80 in dividends compared to my $12.50 entry price.

Even juggernauts like Berkshire Hathaway have routinely fallen by 50% in market value several times in their life, if you have the skills to identify great companies, and buy them cheaply, you don’t need to fret about market falls from time to time.

 

[Value Collector]

@tech/a I guess you are saying that Charlie Munger (and warren Buffet) are terrible investors to.

Listen to the first 1 min of this video to hear Charlie’s thoughts on long term share holding and market falls of 50%.

Berkshires share price has just fallen from about $100 to $50, today it’s $276, Charlie was right to stay calm, judge the stock by the companies they owned and not be phased.

 

[tech/a]

@tech/a I guess you are saying that Charlie Munger (and warren Buffet) are terrible investors to.

Listen to the first 1 min of this video to hear Charlie’s thoughts on long term share holding and market falls of 50%.

Berkshires share price has just fallen from about $100 to $50, today it’s $276, Charlie was right to stay calm, judge the stock by the companies they owned and not be phased.

V/C I’ll take a look and no I’m not saying that but as for Buffett he BUYS the whole company then turns them into juggernauts. Vastly different to what you do. When I read your story I really do shake my head in dis belief! Munger and Buffett aren’t Passive they are pro active in their BUSINESS of investment.

Ill look at both FMG and CBA over the last 15 years and complete a simple exercise
Thanks for your view.

 

[Value Collector]

V/C I’ll take a look and no I’m not saying that but as for Buffett he BUYS the whole company then turns them into juggernauts. Vastly different to what you do. When I read your story I really do shake my head in dis belief! Munger and Buffett aren’t Passive they are pro active in their BUSINESS of investment.

Ill look at both FMG and CBA over the last 15 years and complete a simple exercise
Thanks for your view.

check out CBA since 1996, because that has been my holding period, as I said $12.50 buy in but nearly $80 in dividends and a $100 share price now, although there has been plenty of traders that have lost money on it over that time by jumping in and out.

Buffet passively invests in plenty of companies, for example they bought a 5% stake in Coca-Cola and American Express in the 80’s and have never sold a single share, although looking at the chart both companies have had big fluctuations, they also now own 5% of Apple which dropped for a while after they bought in but which know they have a large gain on.