How did your portfolio do last financial year?

[FlyingFox]

Yes leverage allows you to take more risk, but it doesnt force you too. Money managment and position sizing is the difference between people that use it well and people that blow up - I have done both.

No but you end up taking more risk because you can. Like in your example, if you have 68K in cash in your portfolio. You will only be able to take that one position on CBA. Alternatively using derivatives or margin loans, you will be able to take on a larger position or more positions.

Max possible risk to portfolio in scenario 1, 2%. In scenario 2 up to 100%. The point is not whether you are a good trader or not; I completely agree that you have to be to use leverage properly. But saying that people make 200% and it can be done easily to newcomers like myself and claiming everyone else is a liar is a bit misleading. However you did mention later that you are talking about leverage and derivatives so fair enough. This is not a mute point to be swept under the carpet.

People chasing 200% without leverage or proper understanding on how to use it properly, as you say you have mastered, are bound to shoot themselves in the foot.

Back to the point I was trying to make. It is much better to compare capital at risk as it will give you comparable results. As an example, my current portfolio is mainly cash (Not much of a risk taker and I currently have a very poor understanding of the stocks ). Return on capital would be 5% over the year. Crap right? Return on capital at risk is infinite (X/0.0 = InF; X> 0.0) (well as long as the bank guarantee is on and depends on how you account for inflation). Therefore I can claim I did better than most on this thread on return on capital at risk. Obviously it depends on how you look at things ...

 

[craft]

Unless you're measuring your return on the basis of ‘return on total capital’ then you are probably missing the big picture. What’s the logic of focusing on the return from only part of your available resource?

If wealth creation is your focus then compounding surplus earnings is the key, without it you better really love what you are doing, because tomorrow it will be Groundhog Day again.

CAGR on total capital– only measure worth a pinch of salt.

No matter what anybody tries to tell you – leverage is a double sided sword. Any earnings history, no matter how fabulous, multiplied by Zero = Zero.

You will only improve your return by focussing on your process not by worrying about what others are doing.

 

[Trembling Hand]

Unless you're measuring your return on the basis of ‘return on total capital’ then you are probably missing the big picture. What’s the logic of focusing on the return from only part of your available resource?

Individual portfolio or strategy performance stats does have value.

 

[Klogg]

I am not trying to talk down those who's made good return last year... A good year should be celebrated. You were in the game, took the risks and were rewarded. Well done to you all.

This is why I'm not celebrating the result I got last year... It's only one year, and to add to that, the ASX rose nicely over that year.
If I can average 20-25% over the next 5 years, I'll be ridiculously happy. It's a tough ask, but I'll aim for it... That way if I get close, I'll still be happy.


I should also add, my returns were on total capital allocated at the start of the period... In the last few weeks I've put in additional funds, but have excluded this in the result (even though technically, they were included in late June).

 

[craft]

Individual portfolio or strategy performance stats does have value.

At a process level – Yes.

But big picture?

I think of it along the lines of this analogy. When looking at a business I’m not interested in which individual shops may be being opened, expanded, reduced or closed based on their individual performances. I want to know somebody has got control of that process and what that process produces in overall return on capital.

I don't give a rats that one small shop can make 200% return if the overall business return on capital is crap.

 

[skc]

At a process level – Yes.

But big picture?

I think of it along the lines of this analogy. When looking at a business I’m not interested in which individual shops may be being opened, expanded, reduced or closed based on their individual performances. I want to know somebody has got control of that process and what that process produces in overall return on capital.

I don't give a rats that one small shop can make 200% return if the overall business return on capital is crap.

Surely you guys are agreeing and just talking past each other...

 

[tech/a]

At a process level – Yes.

But big picture?

I think of it along the lines of this analogy. When looking at a business I’m not interested in which individual shops may be being opened, expanded, reduced or closed based on their individual performances. I want to know somebody has got control of that process and what that process produces in overall return on capital.

I don't give a rats that one small shop can make 200% return if the overall business return on capital is crap.

Agree.
One trade doent make a portfolio.
But if the Business only allocates 10% of capital to the shops
Its the return on THAT capital which is specific to the discussion.

If Like myself only a small % of capital ( Used for wealth generation/accumulation) is allocated to trading why would I need to include my return on all available if its not allocated to trading?

 

[Trembling Hand]

Surely you guys are agreeing and just talking past each other...

Isn't that what forums are for?

 

[skc]

Isn't that what forums are for?

Lol... I was having some fried rice and now they are stuck to my screen!

It does seem to be the case for some of the threads here.

 

[craft]

Surely you guys are agreeing and just talking past each other...

Maybe we are just agreeing??? I can't imagine that TH doesn't have an eye on the big picture. And I didn’t mean to come across as disagreeing with his point.

Anyway back to managing my process, Long-Term investing has a slow feedback loop. I suspect wasting time talking past each other on forum is going to bite me in my returns down the track.