If you were to begin again what would you do different?

[Julia]

I have been doing just that for maybe 5 years now, its finally starting to get traction now days which is great. Only sold one share in that portfolio in the last 5 years.

If you mean saving up and then buying in "when you have a set amount", if that's your only criteria to buy then I'm not surprised you are only now 'starting to get traction' after five years. Five years included a rampant time of the end of the bull market when everyone was making lots of money without even trying.
Perhaps I've misunderstood your post but it reads as though you entered the market because you had $X, rather than choosing an entry point from the price action.

That guys is the easy part. What is harder is knowing when to sell. I blew it and if I were to do something different I would want to know when to get out. My biggest mistake was not getting out of the market when the All Ords was at 6,800 points. Yes it's hard to believe but we were there and if I had got out at that time I would be much better off right now.

Exactly. So easy to give back your profits. What's your plan for an exit, Matty?

 

[matty77]

Certainly when I first started putting money in I didn't really know what I was doing and it was a fairly large learning curve with the first GFC hitting etc. You also need to consider that this investment is long term and not a buy sell account - I have other accounts for that sort of stuff, this is purely a buy and hold account. So I really think an average return on that is ok if you consider how volatile the last 5 years has been. Like I said, this only forms part of my investment strategy as a whole.

Buy in is when I have a set minimum amount - it doesnt mean I will buy in then and there, it means I am now ready for the next opportunity that comes along.

Im glad you have made lots of money "without even trying" I guess we all cant be as good as you, maybe you can give us some of the secrets if its that "easy".

Oh also on a side note, what is "starting to get traction" for you? Is that 5% return? 10% return? 50% return? I think its a bit open to interpretation which I did deliberately as I dont need to run around telling everyone what my profit/loss is.

 

[CanOz]

Knowing what i now know....i would have completed a masters in Economics and then joined a prop trading firm. I would have an education in something that I'm interested in and a career in an industry that I'm more passionate about. This would have given an earlier start in the markets as well i believe.



CanOz

 

[Julia]

Certainly when I first started putting money in I didn't really know what I was doing and it was a fairly large learning curve with the first GFC hitting etc. You also need to consider that this investment is long term and not a buy sell account - I have other accounts for that sort of stuff, this is purely a buy and hold account. So I really think an average return on that is ok if you consider how volatile the last 5 years has been. Like I said, this only forms part of my investment strategy as a whole.

Buy in is when I have a set minimum amount - it doesnt mean I will buy in then and there, it means I am now ready for the next opportunity that comes along.

Thank you for explaining. And my apologies for being less than courteous in my earlier post. Good luck.

 

[craft]

1. As has been said before - get in the market early. Put an amount of $ into a share trading account each payday and when it hits a certain amout - buy shares with it, and don't touch it.

This will beat the performance of 99%+ of the people who dismiss it.

 

[Julia]

This will beat the performance of 99%+ of the people who dismiss it.

Interested to understand how you know that, craft?
Performance over what period of time?

 

[craft]

Interested to understand how you know that, craft?

History

Performance over what period of time?

Poster bolded 'early' so say 20’s and leave it there, so God willing that’s about 60 years I guess we are talking about.

Shares are historically the best returning asset class over longer periods. Outperformance is a zero sum game – actually less than zero sum when you take into account costs.

Not too many outperform consistently over long periods and those that do I bet would not dismiss the concept outlined.

 

[Ves]

A few things that I have picked up on my short journey so far (appropriate to my method of long-term investment):

1. Motion does not always mean action

ie. don't watch the tickers all day - you will confuse random movements with substance more often than not - a long-term holder should only need to check prices on holdings every one or two days at the very most. Price action is at best a distraction unless you are a shorter-term trader. I have done much better after I turned most of the market noise off. Time better spent looking at annual accounts.

2. Stop looking for the secret or holy grail

There is no secret or magic formula, the only method to success is hard-work, persistence, a strong temeprament and plenty of patience. You cannot hope to predict the future with ultimate accuracy - but knowing that by making assumptions that are in the right ball-park you will get reasonable returns is the biggest "secret."

3. Don't worry about what everyone else is doing

Fads, manias, panic and general hysteria won't make you rich - unless you learn how to ignore them and discover your own decision making skills (often you will inadvertantly use the emotions of others to your advantage)

The market will often be looking at a company from a different angle to you - so why bother justifying your decisions by weighing them against its reactions? It is impossible to tell from price action alone why other people are selling or buying! So why bother!

4. Turn off the noise

If you are not a macro investor (ie. you are a stock picker) then it is often pertitent to forget about the unpredictable nature of the economy or the All Ords and focus on picking quality businesses as befits your strategy. More often than not you will be completely wrong about the economy and you will lose (actual or from missed opportunity) more money than you will make by trying to pick its future. A quality business should thrive in conditions that see the demise of other companies.

 

[Smurf1976]

Remember that the market will still be there tomorrow.

There's no panic to throw every last Dollar you have into shares. Learn what you are doing first - start small.

 

[Julia]

History

Actual evidence that buy and hold beats selling at or close to peaks and buying back in at or close to bottoms?
If you do this, you have the cash available to buy back into your same chosen shares (if they are still a valid choice) at a much lower price, thus increasing your potential capital gain plus dividend yield because you own more shares than you did before.

If you'd bought in during 2003, when the XAO was around 3000, you could have used your buy and hold strategy right through to Nov 07 when the market peaked at a bit over 6800. Then, as the GFC became obvious, even if you gave back a little of your profits, you would still be holding on to a very healthy gain. Market then fell right back to around your original buy in price, so you could buy back what you sold, only in greater numbers, waiting for the next run up.

I know the fundamental fans love to say that buy and hold beats any other strategy, and it may have been true when you have a reasonably long term bull market. But you can actually make much more money by doing as suggested above.

Even now, in 2012, we're struggling to reach 5000 and the global signs for any significant and sustained improvement are pretty hard to find.

As Bill said earlier, it's knowing when to sell that makes all the difference.

 

[Bill M]

I know the fundamental fans love to say that buy and hold beats any other strategy, and it may have been true when you have a reasonably long term bull market. But you can actually make much more money by doing as suggested above.

Even now, in 2012, we're struggling to reach 5000 and the global signs for any significant and sustained improvement are pretty hard to find.

As Bill said earlier, it's knowing when to sell that makes all the difference.

To add a real case to this I will refer to my super fund. I have a super that is in the Growth Fund. It is about 75% shares. My mid year statement in 2007 is what my current statement is now. So for 5 years doing the "buy and hold" the fund has gone no where. If I was smart enough to go into bonds and cash at the time and sat on it and collected interest until March 2009 I would have avoided the crash and saw my money grow. Had I have gone back into the Growth Fund in March 2009 then by now I would have doubled my money.

I did a "buy and hold" and after 5 years in professionally run Super Fund it went no where. So now I take more notice of what is going on around me and will move my assets where I think I can achieve more growth/income.

 

[craft]

Actual evidence that buy and hold beats selling at or close to peaks and buying back in at or close to bottoms?
If you do this, you have the cash available to buy back into your same chosen shares (if they are still a valid choice) at a much lower price, thus increasing your potential capital gain plus dividend yield because you own more shares than you did before.

If you'd bought in during 2003, when the XAO was around 3000, you could have used your buy and hold strategy right through to Nov 07 when the market peaked at a bit over 6800. Then, as the GFC became obvious, even if you gave back a little of your profits, you would still be holding on to a very healthy gain. Market then fell right back to around your original buy in price, so you could buy back what you sold, only in greater numbers, waiting for the next run up.

I know the fundamental fans love to say that buy and hold beats any other strategy, and it may have been true when you have a reasonably long term bull market. But you can actually make much more money by doing as suggested above.

Even now, in 2012, we're struggling to reach 5000 and the global signs for any significant and sustained improvement are pretty hard to find.

As Bill said earlier, it's knowing when to sell that makes all the difference.

I’m reluctant to go here – but being a gluten for punishment....

Nailing the major highs and lows whilst still avoiding being whipsawed on the minor ones is much easier in hindsight then real time. Do it and obviously you will outperform – however outperformance is a less than zero sum game and with a huge amount of technology, intellect and man power all trying to outperform – doing so in real-time is not as easy as hindsight bias may make it look.

Those that do outperform generally have explicitly documented statistics to record their comparative performance and know the skill, judgement and time it takes to equip yourself for outperformance. They understand the performance that can be achieved by dollar cost averaging a low cost equity fund has to mathematically beat at least 50% of everybody that tries to outperform by either timing or stock selection – thus they respect that approaches power even if they don’t say so openly for various reasons.

The ASX passed through 3000 at the beginning of June 2003 at the time the Accumulation index was 15620, today it’s 35027. That is an annual compound return of approx 9% and that does not include franking credits. The strategy today would have you still fully exposed to a long term growth asset paying a current grossed up dividend yield of 6.2%.

Picking one occurrence where with hindsight it paid to get out and pay tour CGT does not negate the power of dollar cost averaging over a lifetime – the concept the referred to poster stated.

I wonder how many actually got the major top and bottom right and managed to have no other whipsaws in the process of trying to time it? How many think they got it right but have completely missed the bottom and are sitting petrified in cash still, even though the accumulation index is 65% higher then it’s lows.


ps

I know the fundamental fans love to say that buy and hold beats any other strategy

I have an issue with this staement too - but due to lack of time now I will come back to it.


Cheers

 

[Ves]

To add a real case to this I will refer to my super fund. I have a super that is in the Growth Fund. It is about 75% shares. My mid year statement in 2007 is what my current statement is now. So for 5 years doing the "buy and hold" the fund has gone no where. If I was smart enough to go into bonds and cash at the time and sat on it and collected interest until March 2009 I would have avoided the crash and saw my money grow. Had I have gone back into the Growth Fund in March 2009 then by now I would have doubled my money.

I did a "buy and hold" and after 5 years in professionally run Super Fund it went no where. So now I take more notice of what is going on around me and will move my assets where I think I can achieve more growth/income.

Don't most of these growth funds have an internal portfolio turnover upwards of 80%? Whilst you might be buying and holding the actual managed growth funds, the underlying assets that those funds possess are certainly not doing anything that comes close to approaching a buy and hold strategy.

Perhaps not directed at anyone in particular - but I have lost count of the people that rave about how "buy and hold" is dead and how it was so easy to make money by selling at the top of the GFC and then buying back in near bottom. I guess the same people sold at 5000 and bought again at 3800 last year too. Yet more often than not 99% of these people did not actually do it themselves. Hindsight gives people endless amounts of false knowledge it would seem.

In any event, trying to disapprove a selective buy and hold approach by using an index as a proxy for performance is naive at best.

Most people with long-term strategies lost massive amounts of money during the GFC for two reasons in my opinion:

1. They were in the wrong stocks (bull markets famously leave people naked when the tide goes back out and they are left standing without any clothes)

2. Their portfolio had little or no liquidity to take advantage of the countless opportunities that the market threw up

I know the fundamental fans love to say that buy and hold beats any other strategy, and it may have been true when you have a reasonably long term bull market. But you can actually make much more money by doing as suggested above.

I disagree. Bull markets are garbage for most active buy and hold strategies (this obviously does not include those that have for whatever reason, finished accumulating). The opportunties to buy quality companies at reasonable prices are few and far between, progressively deteriorating until the peak is reach.

A decent long-term investor will be better in a bear market, because to put it in simple terms, their defense will be much better than their offense.

 

[Ves]

If you do this, you have the cash available to buy back into your same chosen shares (if they are still a valid choice) at a much lower price, thus increasing your potential capital gain plus dividend yield because you own more shares than you did before.

As mentioned in my post above.

PORTFOLIO LIQUIDITY avoids the "not being able to buy back in" argument. This comes from new money and dividend streams.

If you'd bought in during 2003, when the XAO was around 3000, you could have used your buy and hold strategy right through to Nov 07 when the market peaked at a bit over 6800. Then, as the GFC became obvious, even if you gave back a little of your profits, you would still be holding on to a very healthy gain. Market then fell right back to around your original buy in price, so you could buy back what you sold, only in greater numbers, waiting for the next run up.

This is a red herring.

You are talking about buying at a single point of time and holding forever. The original discussion was regarding a longer term dollar cost averaging process as a starting point. Two things would change in your answer: you would be buying at both highs and lows (although a long term value investing strategy would stop buying well before the highs) and you would have a performance closer to the accumulation index.

Even now, in 2012, we're struggling to reach 5000 and the global signs for any significant and sustained improvement are pretty hard to find.

The proxy value investing systems over at www.gurufocus.com have some interesting performance records over the last few years. These are all mechanical, so there is no stock picking bias.

Go have a look if you are interested.

 

[Bill M]

Don't most of these growth funds have an internal portfolio turnover upwards of 80%? Whilst you might be buying and holding the actual managed growth funds, the underlying assets that those funds possess are certainly not doing anything that comes close to approaching a buy and hold strategy.

Yes you are right, they do have turnover and they did manage it and the fund itself was probably not really a buy and hold strategy. However if that is the case why are 95% of such funds only just now breaking even after 5 long years? The point I was trying to make was that there is a time to get out. For me not knowing when to get out cost me a lot of money. That is something I would like to do differently.

All I had to do to get out was fill in a form, send it in and have the entire account switched into fixed interest and cash. I had the flexibility and I didn't do it. But the old school learning of, you're in it for the long haul, it will be ok and it will go back up again is not the head in the sand approach I would suggest to anyone. All I'm saying is be active, look at your unit prices daily if you have to, keep your eyes on the ball, do not trust others and do what is necessary to protect your capital.

 

[Julia]

I’m reluctant to go here – but being a gluten for punishment....

No need to be a glutton for punishment, craft. I have zero interest in squabbling with you. The thread title indicates that the OP was interested in various approaches to making money. I have simply offered the trend following strategy, as distinct from long term buy and hold or short term trading.
It's immaterial to me whether you regard such an approach as valid or not. I'm not here to be evangelistic about it. Everyone should follow whatever approach they find suits them best. So no real need to be so defensive.

I'll just clarify a few points below and leave you to it. Hope, jank, that amongst the responses on your thread, some of it has been useful to you.

Nailing the major highs and lows whilst still avoiding being whipsawed on the minor ones is much easier in hindsight then real time.

I made no claim to 'nailing the major highs and lows'. Please don't distort my comments.

Prior to the GFC, as I have pointed out earlier, the market essentially doubled from 2003 to a peak at November 2007. I have taken ten years as a reasonable period. I'm very conscious of what happened during this time because I started my SMSF in early 2004, putting about 85% of my available funds into equities.
As the run up continued, the news started to appear here and there about the subprime situation in the US.
Then there were the accounts of the CDOs and CDSs arising out of those dubious mortgages, now floating all over the world. During 2007 there was considerable reason to be watching your holdings carefully.

We all know what happened then.

I went completely to cash at the beginning of 2008, so absolutely gave back some profit, just as I missed that profit to be had at the start of the period I'm quoting.

Do it and obviously you will outperform

So you agree with my basic premise. You do not have to absolutely nail the top. Some people may be able to exactly sell at the peak but I'm not one of them. However, having more than doubled my original invested sum, I wasn't too upset at getting out with most of that profit intact.

doing so in real-time is not as easy as hindsight bias may make it look.

I don't think anyone said it was easy. Any decision is made by weighing up the alternatives, taking due consideration of one's personal circumstances, and going with what seems like the best option at the time.

(If you're working and drawing a salary (which I gather is the case for most of the posters here other than Bill) then you have an assured source of income. If you took early retirement and do not want to go back to work, then capital preservation becomes much more important imo. I suspect many who advocate such practices as averaging down, letting losses run because you still believe in the intrinsic value of the company, might be forced to reconsider if they were dependent on their capital actually generating sufficient to live on.)

Given the decreasing availablity of credit globally, it was my guess that interest rates would soon be going up.
I sat the funds at call for a while until an 8% for five years came up. The risk in taking this is obviously that you're tying the funds up for a long time. A simple calculation showed that the interest on a portion of my available funds would generate quite a lot more than I need to live on at that 8%, and the rest could go into at call accounts. So I chose to take that stress free option rather than be exposed to the potential of the whipsaw type difficulties you refer to above. If I had my time over again, I'd make exactly the same decision.

Those that do outperform generally have explicitly documented statistics to record their comparative performance and know the skill, judgement and time it takes to equip yourself for outperformance.

I think you're over-complicating the approach. If you are only going to be satisfied with a perfect target of selling at the exact peak, you will likely be disappointed. A decision about when to sell should not just depend on what share prices are doing at the time, but should also take into account the global and national situation in every sense, financial, political, and levels of confidence.

The ASX passed through 3000 at the beginning of June 2003 at the time the Accumulation index was 15620, today it’s 35027. That is an annual compound return of approx 9% and that does not include franking credits. The strategy today would have you still fully exposed to a long term growth asset paying a current grossed up dividend yield of 6.2%.

We will all have our individual personal targets for what we need to achieve. If you're happy with the above result, then that's all that matters.

Perhaps not directed at anyone in particular - but I have lost count of the people that rave about how "buy and hold" is dead and how it was so easy to make money by selling at the top of the GFC and then buying back in near bottom. I guess the same people sold at 5000 and bought again at 3800 last year too. Yet more often than not 99% of these people did not actually do it themselves. Hindsight gives people endless amounts of false knowledge it would seem.

That's a fairly unpleasant assertion in the face of a simple suggestion that when to sell is more important than when to buy.
The following post was made by McLovin in the "Tips for Saving Money" thread in September. Are you similarly going to accuse him of being untruthful?

One of the best investments I ever made was going almost all to cash in late 2006 (I held onto some CSL that I'd had since about 1996). I had plenty of people telling me I was an idiot for getting out. I was working in finance at the time too and much smarter heads were telling me this. Didn't lose a cent through the GFC. And then in early 2009 I was cashed up and made a killing, enough that I can now concentrate on my investments full time. Doing it full time, I have found that my knowledge and understanding has expanded exponentially.

Sometimes cash is the best investment.

In any event, trying to disapprove a selective buy and hold approach by using an index as a proxy for performance is naive at best.

The great majority of people who adopt a buy and hold approach do so either via an index fund or by taking a representative group of popular 'mum and dad' shares. They are the people who are still well and truly down in their Super accounts because they didn't consider the possibility of selling when they could hold on to most of their profits.

Their portfolio had little or no liquidity to take advantage of the countless opportunities that the market threw up

If you'd sold $1M worth of shares reasonably close to the peak, I doubt an amount you're keeping in 'liquidity' is going to be equivalent in terms of purchasing power.

 

[burglar]

... The point I was trying to make was that there is a time to get out. For me not knowing when to get out cost me a lot of money. ...

No-one sends you a telegram when the lift reaches the top floor.

(Basics should be taught at school ...)

 

[Ves]

That's a fairly unpleasant assertion in the face of a simple suggestion that when to sell is more important than when to buy.
The following post was made by McLovin in the "Tips for Saving Money" thread in September. Are you similarly going to accuse him of being untruthful?

My apologies for not being clear - but I did not mean it as you are suggesting, but more like this:

Many people told me in hindsight that the best strategy was to buy at 3000 and then sell at 6800. Then buy again at 3000.

Yet, 99% of the people who told me that this was a wonderful idea did not actually do it at the time themselves but they know of someone who did. You ask them why not and they come up with a whole raft of excuses as to why they did not at the time, but they will next time when given the chance!!! I have had the very same conversation with a lot of people in real life.

I am not at all accusing anyone who said that they actually did it as a liar. I am sure people did do as you suggested, but my observations tell me that they are in the absolute minority.

Again many apologies for the confusion that I caused - the point that I am trying to make that decisions of this nature require a truck load of conviction which is easy to forget when we are talking in hindsight.

 

[tech/a]

No-one sends you a telegram when the lift reaches the top floor.

(Basics should be taught at school ...)

Don't know about that
I got mine in bold type.
It's well documented here and on
" The Chartist "

 

[burglar]

... decisions of this nature require a truck load of conviction ...

It's hard to breathe when your heart is in your throat!!