I'm gonna make a Motza today - the Bull is rampaging!

[BSD]

A fundamental investor is doing that but doing the opposite.

They are trying to find a good longterm sustainable industry that is very much out of fashion and performing badly at the moment - hence it is cheap.

A Fundamental investor would now consider the wine industry, telecommunications, maybe steel, property, etc.

You shouldn't get fundamental analysis mixed up with contrarian investing.

You probably need to broaden your analysis (more macro top down stuff) to gain a better understanding of the real value you are seeking.

Steel is far from being out of favour. Hot Rolled Coil is trading at multiples of its 10 year averages. Many steel companies are trading at multiples of their prices 5 years ago.

Demand is very strong, but competition is fierce and input costs are rising. Hence the strength of iron ore and coking coal and BSLs problems.

Property is not cheap, yields continue to fall and are by no means cheap in a historical context when compared to bond yields


Telecommunications and wine have systemic issues and I cannot see a fundamental reason to invest in either industry.

I would question a fundamentalist buying into companies operating in industries resplendent with low margins, excess capacity and/or declining demand.

People 'may' increase their wine consumption, but when you can buy a very good bottle for $15 that cost $25 three years ago, someone is missing out. And who is to say in the future that consumers will choose the commoditised stuff (where FGL have scale and supply chain advantage) and not the more interesting wine from smaller operations.

As for Telstra, a fundamentalist would not buy a company whose earnings are expected to fall by at least 10% (maybe 20%), can't fund divs from cashflow and whos Sol(e) solution is to spend $8bn on capex.


As for investing trends, value investing becomes very popular in bear markets. As does writing covered calls, property and any other strategy that does well when risk is being shunned or markets are falling. Investors tend to become creatures of their times.

 

[Julia]

BSD

Ah, such sense.

Julia

 

[Sean K]

Good points BSD. Unfortunately, I'm a long suffering TLS and FGL holder and have been holding on for the turn 'around'. I think once TLS has the shackles off you could see some inteesting corporate activity. It has such massive cash flow and reach to the public that it could become a complete one stop media and information provider. Think television, internet, communications, newspapers, magazines etc. Plus, there's also the potential to go global. Wine industry has stood on it's todger by allowing so much grape to be planted by all those retired doctors and pilots. But, it's just a cyclical thing. It'll self regulate and turn around in the next few years. I hope.

 

[Sean K]

Or, we should take our cash out it them and invest in something that will outperform. Sounds a bit smarter.

 

[BSD]

Maybe

I dont buy the Telstra business plan.

It is hard to find a telco globally that makes good money. They have to spend so much money on technology that becomes redundant in a matter of years. What becomes of this $8bn worth of fibre if in five years wireless gets fast and cheap? Or some other technology prevails?

As for them becoming a content business - I think you only need to have seen the TLS management trumpeting Sensis as the next Google to get a feel for how much these guys know about the internet, content and media.

It amazes me that for a business so dependent on their clients being luddites (using landline as opposed to VOIP for example) that they think making the net super-fast will increase their business enough to replace their dying fat margin rip-off business of charging $40 a month for the honour of having an expensive phone service.


Buy News Corp if you want exposure to the pros of content. Note that NWS will more than likely try and sell their delivery businesses.

Rupet has more skin in the game than Sol - who will quickly flee to the states at the end of his contrct with a bag of money.

 

[Realist]

I would question a fundamentalist buying into companies operating in industries resplendent with low margins, excess capacity and/or declining demand.

Like Coke and Gillette?

A bottle of wine is $10 to $50 usually, a can of Coke maybe 50 cents from a super market. One razor - 50 cents as well.

 

[Realist]

BSD - you sound like a smart guy.

You want to enter our 1 yearly stock tipping comp??

C'mon please enter your 3 tips

 

[professor_frink]

"From 1938 on the Dow theory operated mainly by taking its practicioners out at a pretty good price but then putting them back in again at a higher price. For nearly 30 years thereafter, one would have done appreciably better by just buying and holding the DJIA"

Ben Graham, Intelligent Investor page 191

However...

He admitted up to 1938 it did infact work. And took people out 1 month before the biggest crash of all in 1929 and kept them out till the bear run was over.

The fact is, as soon as Wall St. recognised and accepted the Dow theory it then did not work. Which is no coincidence. If everybody worked out petrol was alot cheaper on a Monday - everybody would start buying on a Monday, eventually service stations would cotton on, stop discounting on Mondays to make some money, and discount on other days to get buyers to come to their empty stations. Thus Monday is no longer the cheapest.

To succeed on Wall St you need to do what others aren't.

Thanks realist. You may find it slightly funny that as a trader I actually have that book(haven't got around to reading it yet!), so I'll dust it off and have a look.

Enjoy the rest of your weekend

 

[Realist]

Juila and BSD, this is for you. What do you think??

I noticed that a great many of the brokerage house advisers were saying that now that the market has ceased to go up continuously, the thing to do is to exercise selectivity in your purchases; and in that way you can still derive benefits from security price changes. Well, it stands to reason that if you define selectivity as picking out a stock which is going to go up a good deal later on -- or more than the rest -- you are going to benefit. But that is too obvious a definition. What the commentators mean, as is evident from their actual arguments, is that if you buy the securities which apparently have good earnings prospects, you will then benefit market-wise; whereas if you buy the others you won't.

History shows this to be a very plausible idea but an extremely misleading one;
...............
You are not going to get good results in security analysis by doing the simple, obvious thing of picking out the companies that apparently have good prospects -- whether it be the automobile industry, or the building industry, or any such combination of companies which almost everybody can tell you are going to enjoy good business for a number of years to come. That method is just too simple and too obvious -- and the main fact about it is that it does not work well.

I interpret it that infact you are better off buying into industries that have poor prospects than industries with good prospects.

That sounds ridiculous, but it is not, because companies with poor prospects are cheap!! And prospects are merely predictions, they are wrong as often as they are right.

This was written maybe 50 years ago of course, amusingly the building and automotive industries are not ones with a good outlook at the moment.

 

[MichaelD]

I said: Sounds good in theory but this is simply not true. The majority of market participants in Australia are buy and hold investors. Unfortunately, a lot of them bought and held Telstra 2.

Realist said:No they aren't.

The majority are large organisations who buy and sell. Not buy and hold forever.

------

The ASX Share Ownership Study 2004 can be read here;
http://www.asx.com.au/research/market_info/history/share_ownership.htm

Point 1: 6.4 million Australians directly owned shares in 2004.

Point 2: 35% of these do not monitor their positions on a monthly or better basis. i.e. 2.25 million Australians can be reasonably construed to be buy and hold investors.

Point 3: TLS has 1.6 million shareholders. 58.5% of these (just under 1 million shareholders) have 1,000 or less shares. (See 2005 Annual Report).

Consider what these facts might mean.


Realist, there are four stages of market knowledge;
1. Unconscious incompetence - you don't know what you don't know about the market. Unfortunately, your lack of knowledge does not prevent the market from hurting you.
2. Conscious incompetence - you realize that things aren't as simple as they seem to be on the surface. You know there are things you are ignorant of and realize that you need to learn about them.
3. Conscious competence - you've worked out what's going on and by thinking about this you can get by OK.
4. Unconscious competence - you're now in a very select elite group of traders/investors who are intrinsically in tune with the market.

 

[Realist]

Point 1: 6.4 million Australians directly owned shares in 2004.

Point 2: 35% of these do not monitor their positions on a monthly or better basis. i.e. 2.25 million Australians can be reasonably construed to be buy and hold investors.

Point 3: TLS has 1.6 million shareholders. 58.5% of these (just under 1 million shareholders) have 1,000 or less shares. (See 2005 Annual Report).

Consider what these facts might mean.

Okay, the majority of shreholders are mums and dads - buy and hold - YES.

But the majority of shares are not held by them, they are held by corporations.

So yes, some mums and dads have $2000 worth of Telstra 2 and they've probably forgot about them.

We are both right, just looking at it from different angles.

 

[It's Snake Pliskin]

Realist,

.. because companies with poor prospects are cheap!

In hindsight a cheap stock can be and is often expensive, if one is to think in such a way by using words such as cheap and expensive.

 

[MichaelD]

Okay, the majority of shreholders are mums and dads - buy and hold - YES.

But the majority of shares are not held by them, they are held by corporations.

So yes, some mums and dads have $2000 worth of Telstra 2 and they've probably forgot about them.

We are both right, just looking at it from different angles.

Not at all. You have just conveniently forgot about/totally changed the point you were originally making.

Your ORIGINAL claim was;
"The very idea of buying a share, reinvesting dividends and forgetting about it for 40 years is abhorrid to most people."

I've just pointed out to you that this is false and is in fact the way a very large proportion of the Australian public engages the stock market.


btw, where do you see yourself in the investors/traders journey?
1. Unconscious incompetent
2. Conscious incompetent
3. Conscious competent or
4. Unconscious competent, or
5. Whaddyatalkingabout?

Just curious.

 

[Sean K]

Had to dust this Realist special off for today.

DJIA, up 283 pts
Oil, 11 mth highs
Zn 3 week high, up 3.5%
Pb at record, up 3.5%
Au, up to $667
Ni, up 1%
Cu down 1% (party pooper)
M&A action to drive likely targets
Sub prime what?

ASX should party today. :dance:

Good day to take some profits perhaps. :

 

[CanOz]

Had to dust this Realist special off for today.

DJIA, up 283 pts
Oil, 11 mth highs
Zn 3 week high, up 3.5%
Pb at record, up 3.5%
Au, up to $667
Ni, up 1%
Cu down 1% (party pooper)
M&A action to drive likely targets
Sub prime what?

ASX should party today. :dance:

Good day to take some profits perhaps. :

Interesting times hey Kennas. If you pull up the individual index the majority look weak technically, some are consolidating or pulling back.....will be an interesting day though, Edwood and Prof are saying a big gap up...i think it would be a fade off the gap high down thru the day into the weekend!

Cheers,

 

[>Apocalypto<]

from when this thread was started Wavepicker nailed it on the head on a couple of occasions, funny that realist never came and said hey you were right it did drop twice.


I went long on the xjo again last night before the dow opened as the charts said we are shooting for 6400 on another occasion. I feel this could be another vaild shot and making new highs but we must keep our heads and view it from every angle in a real way!

Realist I see no problem in buying and holding my mother has made a packet form 03 to now, but you got to know when to fold them or you will slowly watch all the time go down the drain with your profits. As i saw in here once dont confuse bull market with genuis. TA is not about knowing what any market will do tomororow its about understanding the mentality of the markets player and what type of market we are in. in every time frame then making plays off that based around your thoughts being confirmed.

Wavepicker, just from your posts, it's easy to see your skill and experience you showed no emotion a true realist!