How many people get above average returns over the long term?

[aus_trader]

My interest rate is 4.49 for the share loan but point is good. The problem is that I built a new house and have to pay that off also at 3.59%.

I am better to concentrate on that while making money through the shares and negative gearing the interest.
Both loans have dropped due to payments and successful share trading so my share gearing has been dropping. The longer it goes the less risk.

If I didn't do it this way I wouldn't be able to take decent share positions and make much money.
Trading at $3000 for instance has its own costs.

Good to hear that you are stying on top of things and making sufficient money to cover all your expenses including interest costs. Actually your interest rate on the loans is one of the lowest around I reckon at 4.49% and I was about to ask with which bank, but I just saw you mention that you get it from CUA.

If you are holding shares for the long term, use minimal leverage if you can as it will help you to have a more relaxed psychology as you can be profitable with lower % gains on the portfolio as you don't have to make an extra 4.49% per annum. Leverage is a double-edged sword and if there is a downturn you will thank me for this advice/suggestion.

You mentioned that you are slowly de-leveraging with your profits. Good on you Knobby22, keep doing that and you'll be able to have peace of mind.

 

[StockyGuy]

I wonder if it's valid to say that those not using margin loan tend to go for stocks with a greater volatility. Potentially they also don't need to be so worried about adhering to advice to have dozens of stocks to diversify. The latter saves on transaction costs (and mental fatigue).

The person using a margin loan is forced to, to an extent, and many would regardless wisely choose to, hold the blue chips (or similar) - which without leverage often have a rather boring rate of return in the short to medium term (remembering you only benefit when you take over and above the 7% or so pa margin loan rate!).

Non-margin use is not necessarily conservative. A non-margin user in fact faces risk of their own recklessness due to feeling safe from margin calls. On flipside, they can also be intelligently adventurous and risk-taking in their stock choice in ways that that a margin user can't (or shouldn't). Being without any leverage frees you up to be speculative.

I guess it all goes back to the idea that people should not trade with such small account balances that a successful day without leverage barely gives them enough profit to buy dinner with.

There's also a time for almost every instrument and strategy. Even the rather maligned CFD has it's correct application. I just wish damned IB, which I love, gave me margin as a choice when everything aligned for the right leveraged trade!

 

[rnr]

@StockyGuy
Are you talking about investing for the long term or a short term trade?

 

[Zaxon]

I wonder if it's valid to say that those not using margin loan tend to go for stocks with a greater volatility.

The typical, conservative investor would go for blue chips and not use a margin loan. So that's probably the majority of investors. But I agree with the sentiment running through your whole post.

Non-margin use is not necessarily conservative. A non-margin user in fact faces risk of their own recklessness due to feeling safe from margin calls. On flipside, they can also be intelligently adventurous and risk-taking in their stock choice in ways that that a margin user can't (or shouldn't). Being without any leverage frees you up to be speculative.

Yes. A very well-put statement, and one I can identify with.

When writing my For/Against list in a previous post, I suddenly had the answer as to whether margin loans were right for me, personally. I invest in a lot of small cap companies (in addition to others). These stocks wouldn't be eligible for margin loans anyway, and they are inherently more volatile. In a sense, they have the return multiplication which margin loans give you (for better and for worse), but without the interest costs.

But volatile stocks are probably not suitable for the average investor.

 

[StockyGuy]

@StockyGuy
Are you talking about investing for the long term or a short term trade?

Hmmm more short to medium. Long term investment, which sounds almost like buy and hold, probably means holding through big downturns and maybe even cyclical market crashes. I think most would say long term investments should not be leveraged, or only to a minimal extent and that presuming you can get a very agreeable interest rate on the borrowed funds.

 

[aus_trader]

But volatile stocks are probably not suitable for the average investor.

I am into small caps too and you are right, if you pick the right ones you can easily get double-digit and the occasional triple-digit winner in your portfolio without using any form of leverage. Picking the right ones amongst all the duds out there is the challenge .

 

[tech/a]

As I read this thread I see an aversion to leverage continually the FEAR of LOSS
comes across loud and clear. I hardly hear a whisper in the for camp.

I traded with BT margin** for over 7 years in the days of Tech Trader.
(Un Holy Grails Page 109-115 Nick Radge ). With a starting capital of
$30,000 and trading on margin as shown above Had an equity peak
of $479,000 and when I closed the system permanently $387,000
In 7 years Id increased my $30,000 x 12.69 Times in 7 years using
the power of Leverage and Compounding--that's 1,290 % Increase.

WITHOUT TAKING ON MORE RISK!

**
https://www.bt.com.au/personal/investments/solutions/borrow-to-invest/bt-margin-loan.html

If you ran a business and if your serious this is a business you'd have various business loans
Overdraft,Leasing etc. This is one tool we can use to our advantage---DONT FEAR IT!!

Learn how to use and apply it CORRECTLY!

It DOESN'T mean getting $500,000 @ 7% to trade with --- with an equity of $25,000 and buying $500,000
of shares!! (This is an example insert whatever ratio)

That's how most here believe a Margin loan should be used.

FRUSTRATING.


Everyone wants to be wealthy but think like PAYE tread mill workers.

My last post on this unless its a question!

 

[aus_trader]

I traded with BT margin** for over 7 years in the days of Tech Trader.
(Un Holy Grails Page 109-115 Nick Radge ). With a starting capital of
$30,000 and trading on margin as shown above Had an equity peak
of $479,000 and when I closed the system permanently $387,000
In 7 years Id increased my $30,000 x 12.69 Times in 7 years using
the power of Leverage and Compounding--that's 1,290 % Increase.

Impressive numbers tech/a !

It DOESN'T mean getting $500,000 @ 7% to trade with --- with an equity of $25,000 and buying $500,000
of shares!!

So true. Who can sleep at night with that kind of leverage...

 

[tech/a]

So true. Who can sleep at night with that kind of leverage...

1000s do it every single day.
I do it.

But I do it with no more risk than trading my $X----Insert amount
you use for me its 35K or max 6 contracts of the DAX.-- (Futures ).
Property at one time 12 at the one time often with zero down.
Just using gained equity.
Business with machinery all the time. (7 figures).

I sleep fine I've quantified the risk
Lived through 1987/1993/2008/9.
I know how to avoid ruin---everyone should.
I know how to use other peoples money---everyone should.

 

[Garpal Gumnut]

1000s do it every single day.
I do it.

But I do it with no more risk than trading my $X----Insert amount
you use for me its 35K or max 6 contracts of the DAX.-- (Futures ).
Property at one time 12 at the one time often with zero down.
Just using gained equity.
Business with machinery all the time. (7 figures).

I sleep fine I've quantified the risk
Lived through 1987/1993/2008/9.
I know how to avoid ruin---everyone should.
I know how to use other peoples money---everyone should.

I would endorse tech/A's approach IF

You have his attitude towards risk
You have his knowledge of risk
You are driven
You are philosophical
You enjoy a black swan paddling past for it's beauty not it's omens
You are willing to share your knowledge with others

I would not endorse tech/A's approach IF

His final destination is money
He has not read Marcus Aurelius
He has not studied infinity.

Overall, taking the + and minuses, having read his posts for 15 years I believe I would endorse him as a tactician, technician and human being.

Just my take on it, never met him, could be the greatest bastard or nicest bloke for all I know.

gg

 

[tech/a]

GG
I agree

Most people are not Business minded and most people
here shouldn't be trading.
80% fail in business and higher in trading.
Its not for everyone as a wealth creation tool.

I have no problems with Black swans--I'm a duck!

 

[aus_trader]

GG
I agree

Most people are not Business minded and most people
here shouldn't be trading.
80% fail in business and higher in trading.
Its not for everyone as a wealth creation tool.

I have no problems with Black swans--I'm a duck!

Although I have some reservations about the risk taking / leverage, your sense of humour is outstanding !

 

[kahuna1]

Leverage is a tool.

One that is akin to using a bulldozer in a confined space. An expert can do this, a not so expert person will destroy everything. As a rule, margin is to be used even for very experienced well disciplined traders or investors at less than say 50% margin overall. Even at that level, holding 200% of shares verses equity, should be ONLY short term and exceptional circumstances if you want to survive longer term.

A leverage for a portfolio at say 25% MORE or 125% or even 150% gives you a better chance and playing this off against returns IS a good thing. As happens, periodically markets correct and being invested at 200% at the wrong time, will occur if one is NOT adverse to leverage at extremes. NOT just our market extremes but WORLD market extremes. Australian equities are irrelevant in driving long term direction of global markets. USA is approaching 3 times, or 300% of the GFC lows, DOUBLE the highs of the PRE GFC period. DOUBLE. If we applied this to our market, ignoring other things, we should be at an ASX 200 of say 9,500 to 13,000- so lets say 11,000 verses 6,300. We have and WILL and do under-perform the USA as does the rest of the world, for some very good reasons.

The things that MAKE markets and equities MOVE are quite simple on the MACRO side. Interest rates, on the fiscal side and goverment spending and taxes on the other. USA has decided NOT to pay for its elderly, pay for pensions, pay for healthcare and as such its now, 10 years after the GFC in a supposed recovery, running a deficit to GDP in spending of 4% of GDP. It is in itself on of the largest deficits ever run in the past 150 years outside of the GFC or say WW2. It is ignoring its debt level, the world is ignoring its debt level and when a taxpayer has $200,000- per tax payer DEBT ... and it does need to be serviced and the lower 80% of taxpayers have an income of a mere $35,000- PRE tax and $31,000- POST tax and social security, owing $200,000- and even servicing at 2% a $200,000- debt or $4,000- is being ignored FOR NOW.

Perspective, and a very long term one is needed for any portfolio. We In Australia seem to have an idiotic fiscal concept that a BUDGET SURPLUS is needed. On one hand EU and Australia as life itself went from 72 years in 1980 tp close to 84 years so too did the RISING cost of living medically and pension wise and TAX verses GDP went UP by 2% or sso. It ROSE ... to cover pensions and super and so too medical care. USA which operates on what is good for the 1% it FELL ... and FELL sharply. It went from 35% PLUS of GDP to 30%. The awful, sickening impact of this is NOT being as per normal fuller reported, but what is, is a disgrace and life expectancy instead of as it was in 1980 being close to number one, is NOW officially 78.6 years but clearly, easily 75 at best. Of course the top 1% even 20% can afford the worlds most expensive healthcare, bugger the rest and one side lives to 90 or so and the other is fast approaching 65 years.

Tax in the USA has fallen from 35% even 36% of GDP to 30%. Australian and EU and most others its risen by 2% of GDP and here,including super as one must its at 38% of GDP and EU around 40% of GDP.

Margin and leverage, is RELEVANT to the very big long term picture. USA is here also due to its actions into the GFC and it DOUBLED its debt in dollar terms, clearly has no intention to repay it, let alone service it and if one party stays in will cut what was free medical care to over65;s which is NOW not free and costs 20k per year for over 65's even further. Quite a sick display of human greed verses the needs of the many.

It will, obviously change at some stage and USA will ... get universal free or low cost healthcare. Either 2020 or 2024 will start the ball rolling. Either that, or outright revolt as even the most red blooded GOP party person crosses the lines even now for better healthcare. The impacts it will have on the healthcare industry in the USA where they see fit to charge 3,4,5 times the cost and the similar impact on healthcare provider sand insurers where a mere hospital bed costs 500% the EU average is obvious.

Other factor as to WHY in the USA ... is up here is two fold. One is it had interest rates at ZERO for a very long time. Every law about finance and lending below inflation, out the window. EU is following and still there, but it was LATE to the game for its bonds and endured, despite a much better 40% of GDP int axes, it was paying 2-3% MORE for debt verses a nation which collected bugger all tax.

Interest rates at zero ... dividends at 3% or 4% ... is a massive stimulus.

Second factor is tax theft ... evasion, avoidance and Australia, we clearly loose 30 billion easily seen in tax theft. We have laws, ignored, we are changing them and will do so ... the money FLOWS ... on the main to the USA. Gelncore os Swiss and one of the biggest evaders, but then we have oil companies, USA based, and the tech group where Microsoft with 3.6 billion sales books 3 billion via Bermuda and misses 10% GST let alone a profit margin over 25% and pays virtually no income tax.

Again big things, relevant if your going leveraged that MUST and WILL change mid term in say 5-10 years.

Lastly and perspective again, ignoring madness ... for 100 years the USA equity market traded in the 40% of GDP region. YES 40% of GDP .... two world wars, a few minor ones, good times and bad, but 40% of GDP. It NOW approaches as it did in 2000 .... a 125% of GDP level and in 2008 or late 200 that WAS the reality ... 125% of GDP until the goverment stepped in and prevented a fall in GDP of 1930-33 size.

USA equities are trading close to 300% OF The long term averages. WE are NOT ... but still inflated a fair bit as is the rest of the world.

If your going to use margin ... think about it !!

Perspective ... and very long term is needed in times of madness.

USA is LIKELY to go higher, short term, despite the long term perspective and its just a cautionary tale. Reason being is again linked to MACRO side and USA just cut its taxes and ignored its 99.99% of people and tax collected went from 17.5% on profits for companies to 7.5% ... despite the headline tax being now 21% verses 35%, GREECE had woeful tax collection and massive avoidance, USA makes it look like a novice. The 21% company tax rate is incompatible with HUMAN life, and whilst 35% headline rate was irrelevant when only HALF that was being collected on profits, instead of the loopholes being closed .... and the fall in collections being not a lot, it IS NOT the case.

Short term, USA I would like it to kiss say 3,150 on the S+P 500 in its madness. So that's still some ways away. But, eventually a more fair healthcare system will evolve, some USA sector are DOOMED profit wise when this occurs. But till then .... the top end dictates.

Buffet and his situation, he made or outperformed PRE 2000 via a good fundamental analysis of values of stocks. These stocks were valued at times close to 25% of GDP .... verses here at say 120% pf GDP one is 5 times CHEAPER than the other. His money I might also add is made up via 75% of it, his wealth, by NOT PAYING TAX. The companies he has his main investments in ? The largest tax evaders such as APPLE and Goldmans. Of course it legal in the USA, not really what they do raping the rest of the world and paying no tax .... but such is life.

This like most things cannot go on. Free trade does not mean rape the tax system of other nations and these are private companies .... greedy ones who need a few CEO's to spend time in jail.

Leverage here ? Well ... I have an interesting background and long term perspective. I would of course urge extreme caution. It would as experience tells me be wasted breath. Investing and trading is where someone makes a profit on a stock, or even a loss and more likely a loss, and they become an expert.

Back into my hole .... just be cautious, or think about perspective. Less than 50% .... say 150% ... I could live with ... 200% borrowing half ? Risky and oh and DIVERSIFY ..... or perish. Buffet himself gets it VERY VERY wrong despite 60 years plus in the industry. His pre GFC buys were trashed to the tune of a zillion gazillion or so total loss .... TOTAL loss.

 

[Dona Ferentes]

And something to consider;


..... There have been a multitude of studies of long-term returns, but it was Bessembinder’s results which shocked, and he outlined them in a recent presentation in Sydney. Out of 26,000 US listed companies:

• A few stocks have very large compound long-run returns.
• The large positive ‘market risk premium’ is attributable to relatively few stocks.
• The top 90 firms (1/3 of 1%) account for half of the shareholder wealth enhancement (relative to US Treasury Bills) since 1926.
• The top 4% of firms account for all of the net shareholder wealth creation since 1926.

Only about 1,000 stocks out of 26,000 accounted for all the US$35 trillion of wealth created (above the Treasury Bill rate). This is far from a coin toss as 96% of companies did not contribute to growing net shareholder wealth....

(And much further on)

.... But for most retail investors, the man who spends his life studying the numbers says buy a low-cost and diversified portfolio. Manage risk tolerance through asset allocation and the mix of defensive and growth assets rather than worrying about individual stocks. Shares will rise over time but with painful periods along the way, and everyone reacts differently to underperformance, either by their own stocks or a selected fund manager...

Only 2.4% of companies deliver all net shareholder wealth

Over decades, relatively few companies generate all the stockmarket's outperformance. Is this an argument for passive investing or does it prove active investing is rewarded? Bessembinder lets you decide.

www.firstlinks.com.au

 

[aus_trader]

And something to consider;


..... There have been a multitude of studies of long-term returns, but it was Bessembinder’s results which shocked, and he outlined them in a recent presentation in Sydney. Out of 26,000 US listed companies:

• A few stocks have very large compound long-run returns.
• The large positive ‘market risk premium’ is attributable to relatively few stocks.
• The top 90 firms (1/3 of 1%) account for half of the shareholder wealth enhancement (relative to US Treasury Bills) since 1926.
• The top 4% of firms account for all of the net shareholder wealth creation since 1926.

Only about 1,000 stocks out of 26,000 accounted for all the US$35 trillion of wealth created (above the Treasury Bill rate). This is far from a coin toss as 96% of companies did not contribute to growing net shareholder wealth....

(And much further on)

.... But for most retail investors, the man who spends his life studying the numbers says buy a low-cost and diversified portfolio. Manage risk tolerance through asset allocation and the mix of defensive and growth assets rather than worrying about individual stocks. Shares will rise over time but with painful periods along the way, and everyone reacts differently to underperformance, either by their own stocks or a selected fund manager...

Only 2.4% of companies deliver all net shareholder wealth

Over decades, relatively few companies generate all the stockmarket's outperformance. Is this an argument for passive investing or does it prove active investing is rewarded? Bessembinder lets you decide.

www.firstlinks.com.au

Very interesting finding @Dona Ferentes , I guess we are all searching for those rare outperforming stocks, trying to find that gem or golden nugget in the crap heap...

 

[farmerge]

Very interesting finding @Dona Ferentes , I guess we are all searching for those rare outperforming stocks, trying to find that gem or golden nugget in the crap heap...

Which Mr Austrader brings to mind a character from the now defunct forum who bought in a ship load of WAF for about 1c and then sold out at over a $1. He had over 1 million That was certainly his Golden Nugget.

 

[divs4ever]

Very interesting finding @Dona Ferentes , I guess we are all searching for those rare outperforming stocks, trying to find that gem or golden nugget in the crap heap...

i have searched and searched , and sometimes found a few , sadly nearly all of them were NOT selected to become multi-baggers

my only buy selected to be a multi-bagger was MQG ( av. SP $26.76 including a bonus SYD share ) the rest decided to rise without any successful prediction from me , including star of the portfolio , PME ( bought @ 16.5 cents , currently up more than 39,000% ) silly me thought it was good for a 1 cent or maybe 1.5 cent div a year

maybe somebody else has a better formula than me ( one success in more than 400 stocks over the last 11 years isn't a good strike rate )

good luck selecting your multi-baggers

 

[rcw1]

Which Mr Austrader brings to mind a character from the now defunct forum who bought in a ship load of WAF for about 1c and then sold out at over a $1. He had over 1 million That was certainly his Golden Nugget.

Good morning
No it wasn't rcw1 ha ha ha ha ha

Kind regards
rcw1

 

[Value Collector]

i have searched and searched , and sometimes found a few , sadly nearly all of them were NOT selected to become multi-baggers

my only buy selected to be a multi-bagger was MQG ( av. SP $26.76 including a bonus SYD share ) the rest decided to rise without any successful prediction from me , including star of the portfolio , PME ( bought @ 16.5 cents , currently up more than 39,000% ) silly me thought it was good for a 1 cent or maybe 1.5 cent div a year

maybe somebody else has a better formula than me ( one success in more than 400 stocks over the last 11 years isn't a good strike rate )

good luck selecting your multi-baggers

I have found a few “Multi-baggers”, and had the conviction to be quite heavily weighted in them. But I still believe in index investing too, My super and an investment bond I hold are both 100% indexed into VAS, VGS and a property index.

I 100% believe it’s possible to beat the market average return, there are 3 main ways.

1, Applying more skill and emotional stability to the task than the average market participant.

2, Applying leverage.

3, Being Lucky.

Sometimes, people that benefit from number 3, make the mistake of thinking they used number 1, and can we really ever be sure? And number 2 can increase your returns, but also increases your risk, and if pushed beyond modest amounts can cause you to blow up.

The Market average return general proves to be a decent return over time, so even though I dedicate a decent portion of my capital to trying to beat that average, I see no problem with also holding quite a bit of indexed investments, if anything it’s insurance against me one day blowing up my direct portfolio.

Plus, I kind of like the idea of holding a broad cross section of the global economy, with the index I make money off almost every transaction that happens right across the world.

 

[Belli]

the average market participant.

Hello me.

broad cross section of the global economy

Rough as guts calculation is my split is 60% OZ (LICs & VAS) / 40% International (VGS). I think some of the Oz holdings also have a smattering of international income.