Long term blue chip investment

[tech/a]

Actually as I said its my background in mathmatics that makes it impossible for me to have any confidence in it. Its like asking a biologist to suscribe to creation.

Doing a lot of work on various trading things with My resident quant (Son ) a Doctor of Physics.
He would disagree with you--as I do.
So would Bruce Vanstone also a Doctor of Mathematics

http://works.bepress.com/bruce_vanstone/

As is Howard Bandy

http://www.blueowlpress.com/

First learn how to trade then apply!

On topic

Take whatever trade you wish
Set a stop at B/E and forget
Whats so hard about that?
Buy and hold to your hearts content!

 

[Boggo]

Its as simple as this but 95% of the trading population will probably disagree...

http://www.goldtradingexperts.com/1...ing-financial-markets.html?utm_source=taboola

 

[craft]

I can think of many examples where that exact strategy with sensibly chosen shares would have led to enormous wealth creation. It does take time and inactivity, and of course it requires careful selection of great companies.

Seems a good strategy to me. I think the bolded bit is the key.

Probably not good advice for the OP (but you also pointed that out) If he/she can't handle potential loss then there is no valid strategy for potentially improved returns.


My strategy is buy right - Hold tight. Meaning buy the right company at the right price and then hold tight, disregarding the market price so long as the business stays on track.


I see the usual 2 bob forum experts have lined up to bash you and your long term stock selection strategy up.

Safe to say the mind set to implement such a strategy is different to theirs. No use arguing the toss - Just smile and wave.

 

[tech/a]

I see the usual 2 bob forum experts have lined up to bash you and your long term stock selection strategy up.

Safe to say the mind set to implement such a strategy is different to theirs. No use arguing the toss - Just smile and wave.

Love it!

So forget risk mitigation "Pick the Right stock and she'll be right mate"

Babcock and Brown
ABC learning
HIH
Lihir Gold.
Blah blah---ohh Wrong stock selection?

Ring a bell-----

Hold as long as you wish just dont hold it lower than your buy point!
But hey do what you like---

 

[joku]

Hold as long as you wish just dont hold it lower than your buy point!

:bekloppt:

 

[ROE]

Love it!

So forget risk mitigation "Pick the Right stock and she'll be right mate"

Babcock and Brown
ABC learning
HIH
Lihir Gold.
Blah blah---ohh Wrong stock selection?

Ring a bell-----

Hold as long as you wish just dont hold it lower than your buy point!
But hey do what you like---

Absolutely nothing wrong with picking a bad stock as long as you pick WOW CBA ARP DMP FLT MMS CSL CCL and dozen other as part of the mix ... most great business deliver many many multi baggers in the long run...

Nothing wrong picking a couple of wrong stock every so often just like your trade nothing wrong with
having a few loss making trades...

There are many way to make money in the market... No point quacking other because they don't follow a certain technique....

 

[craft]

Love it!

So forget risk mitigation "Pick the Right stock and she'll be right mate"

I'm not for a second suggesting to forget risk mitigation – but the bit you have in quotes is exactly right – risk mitigation is done thought analysis and selection of the business you invest in.

Babcock and Brown
ABC learning
HIH
Lihir Gold.
Blah blah---ohh Wrong stock selection?

Ring a bell-----

Hold as long as you wish just dont hold it lower than your buy point!
But hey do what you like---

You can throw as many dog stocks up as you like to undermine the strategy but you are picking stocks that most decent fundamental analysts can quite easily side step.

Personally, I have never held any of those stocks – I have never held a stock that has gone bankrupt and I have been investing right through the period when these companies failed.

As ROE points out the upside for good stocks is many multiples of your buy price, the downside is limited to 1 but picking good companies at cheap prices you will probably never come close to a 1R loss – I certainly haven’t. The built in asymmetric risk/reward gives you a great expectancy.

The strategy is truly scalable and best of all requires next to no screen time, so you can sit on the beach instead of in front of a screen.

 

[tech/a]

While you all believe Im at direct logger heads on this Im not.

All Im pointing out is that I cant see the point in 3 things.
(1) Buying at anytime then hanging on. (No care for timing)
(2) Timing by buying as a stock falls in price. (Averaging Down.)
(3) Holding a stock beyond a breakeven point.

I just think with a little effort you can do it much better.

By the way at the height of those stocks I offered up as examples
certaintly werent seen as dogs then!
NCM currently is seen by some as the bargain of the century ----is it?

 

[boofis]

The strategy is truly scalable and best of all requires next to no screen time, so you can sit on the beach instead of in front of a screen.

What's the strategy sorry? I think I missed this.

 

[sinner]

I just think with a little effort you can do it much better.

By the way at the height of those stocks I offered up as examples
certaintly werent seen as dogs then!
NCM currently is seen by some as the bargain of the century ----is it?

tech, one thing I've been curious about recently is why you seem to be OK with the idea of buying a cashflow positive investment property and holding for the long term, but you're also very against the idea of buying a cashflow positive business and holding for the long term?

Not having a go, just kind of curious about where the difference lies for you, because when it comes to property you are much more FA oriented, never have I seen you post a chart of real housing returns and the associated wave count.

 

[tech/a]

tech, one thing I've been curious about recently is why you seem to be OK with the idea of buying a cashflow positive investment property and holding for the long term, but you're also very against the idea of buying a cashflow positive business and holding for the long term?

Not having a go, just kind of curious about where the difference lies for you, because when it comes to property you are much more FA oriented, never have I seen you post a chart of real housing returns and the associated wave count.

Haha I wish----

Ok
Unlike Property we have the ability to sell a stock with a phone call.But Im happy to put as much in a stock which returns a good dividend and doesnt erode my capital preferably increases it. Initially I was leveraged 4:1

Your arguement is that my capital can be eroded in property yet I hold---valid and its happened---but I havent bought more property!

Unfortunately I cannot sell property and then buy it back again in 10 mins like I can do with stocks.

What I can do and have done for the last 10 yrs is off load debt (Liability of) which although not perfect means Im maximising return. Ive also kept the best--well in my opinion.

But to be honest the biggie was savings (tax) within my Company and Superfund when I bought my own Industrial property back when you could get $100K each into Super 2 years in a row--think it may have been $150K---

I just reciently sold a vacant block (Industrial) for a $15k loss. No point in no income from that!

I want the diversification as well.

But In my view stock can be far more rewarding if you play your $s right. Now that we dont have those concessions available.

 

[pavilion103]

The one thing I've struggled with is understanding why some people I know buy a stock while it is falling (because it is cheap/represents value). Then being happy that it is falling because they can buy more.

I've always thought that its great to identify these great value opportunities but why not maximize the timing of entry? Wait for bottoming out behavior and then you give yourself the best chance of buying at the best price without missing the opportunity.

The fundamental approach may be great but why not combine is with the technical to improve entry (and exit).

 

[joku]

The one thing I've struggled with is understanding why some people I know buy a stock while it is falling (because it is cheap/represents value). Then being happy that it is falling because they can buy more.

Because fundamental investors believe there is a disconnect between price and value. If they are right they should only be disappointing when value drops. When Prices drop and values either stay steady or rise this could be considered positive so long as they weren't planning on liquidating any time soon and have extra capital available - planning/needing to sell in the short/medium term regardless of future valuation and price changes doesn't fit well with fundamental investing it's a recipe for failure really. In the long run if you can stick to your guns and so long as you are better than average at guessing value it all works out when combined with margin of safety (buying below your valuation to skew returns/probabilities in your favour) and sensible allocation strategies (reducing the risk of being wiped out by statistically unlikely events).

why not maximize the timing of entry? Wait for bottoming out behavior and then you give yourself the best chance of buying at the best price without missing the opportunity. The fundamental approach may be great but why not combine is with the technical to improve entry (and exit).

You make it sound like bottoming out behavior is obvious yet studies tend to show that traders on average lose LOTS of money so it can't really be that easy at least not for most people. Anecdotally I witness thousands of accounts where this is also true. None of that makes it impossible but clearly you need something that sets you out from the pack along with sound plans for mitigating risks etc just like fundamental investing.

As for combining both strategies.. well if you can come up with an overall plan that works this way then good for you. Personally I don't entirely ignore charts in my fundamental investing, just 99% : I do a small amount of trading too btw and the rules I trade by are very different and in some ways opposite to my fundamental investing rules - that doesn't make either of them wrong it depends on how they fit within the overall investment plan. Sometimes you're required to give up a little to gain a lot. I would love to see you sit in front of Buffet and tell him there's these blatant holes in his strategy.

 

[craft]

Because fundamental investors believe there is a disconnect between price and value. If they are right they should only be disappointing when value drops. When Prices drop and values either stay steady or rise this could be considered positive so long as they weren't planning on liquidating any time soon and have extra capital available - planning/needing to sell in the short/medium term regardless of future valuation and price changes doesn't fit well with fundamental investing it's a recipe for failure really. In the long run if you can stick to your guns and so long as you are better than average at guessing value it all works out when combined with margin of safety (buying below your valuation to skew returns/probabilities in your favour) and sensible allocation strategies (reducing the risk of being wiped out by statistically unlikely events).



You make it sound like bottoming out behavior is obvious yet studies tend to show that traders on average lose LOTS of money so it can't really be that easy at least not for most people. Anecdotally I witness thousands of accounts where this is also true. None of that makes it impossible but clearly you need something that sets you out from the pack along with sound plans for mitigating risks etc just like fundamental investing.

As for combining both strategies.. well if you can come up with an overall plan that works this way then good for you. Personally I don't entirely ignore charts in my fundamental investing, just 99% : I do a small amount of trading too btw and the rules I trade by are very different and in some ways opposite to my fundamental investing rules - that doesn't make either of them wrong it depends on how they fit within the overall investment plan. Sometimes you're required to give up a little to gain a lot. I would love to see you sit in front of Buffet and tell him there's these blatant holes in his strategy.

Great Post.

- - - Updated - - -

The one thing I've struggled with is understanding why some people I know buy a stock while it is falling (because it is cheap/represents value). Then being happy that it is falling because they can buy more.

I've always thought that its great to identify these great value opportunities but why not maximize the timing of entry? Wait for bottoming out behavior and then you give yourself the best chance of buying at the best price without missing the opportunity.

The fundamental approach may be great but why not combine is with the technical to improve entry (and exit).

I wouldn’t suggest you add fundamental considerations to your trading. Trying to respond to two different masters who are dictating two different actions at the same time will kill you ability to act. The edge of either is cancelled by the other.

If you can understand the rational for not adding valuation considerations to your trading then the flip side is the answer to your post.

Of course some people just chase prices down and justify their actions with flimsy valuation arguments - Do us a favour though and don't just lump us all into the same FA basket like some do.

 

[CanOz]

Check out this from another fellow Canadian...

PurpleChips uses a visual approach to illustrate clearly where investment opportunities exist. Using the research method, investors will learn to identify exceptional companies with a quick visual inspection of certain factors in their earnings history. PurpleChips gives the average investor the tools to make decisions and focuses on quality, low-risk stocks.

I like his style of investing, he actually gets out when he is wrong, according to the Bloomberg interview last night. He was saying that if the reasons for him investing in the first place change, then something has gone wrong and he'll exit, he doesn't hold onto losers in the "value" sense. I think this is important for new investors to know, you don't need to hand on and hope...

I'm sure there will be no ahh haa moments with Ves, Craft, McLovin and the other value investors here, but i thought the interview was good and worth posting some links here.

Cheers,


CanOz

 

[McLovin]

He was saying that if the reasons for him investing in the first place change, then something has gone wrong and he'll exit, he doesn't hold onto losers in the "value" sense. I think this is important for new investors to know, you don't need to hand on and hope...

I think if you're not getting out when things change (and doing it fast!) then you're not really investing just hoping. And there's always plenty of hope going around! People seem to get married to positions, where admitting they're wrong seems to hurt more than the real money they're losing. The psychology of it is something I'm only now starting to appreciate.

 

[CanOz]

I think if you're not getting out when things change (and doing it fast!) then you're not really investing just hoping. And there's always plenty of hope going around! People seem to get married to positions, where admitting they're wrong seems to hurt more than the real money they're losing. The psychology of it is something I'm only now starting to appreciate.

Yeah, the other thing he says which is very true is that most people like to be right more often , and take smaller gains. This is absolutely true of the majority and its the reason why trading systems with high win rates sell better than trend following systems with higher draw-downs...its human nature. Ideally of course, a short term MR system for income and a long term TF system for growth should be emplyed in my view.

Value investing is a little of both in some respects as you get income from the divies...

Anyway, maybe someone will read the book and give a review, might be good for some of the newer value investors here that tend to hope a little more than they should.

CanOz

 

[themeinvestor]

OK, so here's my view.

In some ways, for a retail investor, the hard work is done for you.

There are a lot of talented, highly paid, well informed bottom-up investors out there (including the bots and algorithms). They are setting the prices, and staking their reputations on it.

For every one of those guys who gets it wrong, or slightly wrong, there is another one who gets it right.

True (large) pricing errors (based on information in the market) for large, well researched, well run, companies must be few and far between.

My view is that the theme, the macro, is more important. It will tell you when to get in, and when to get out.

The Chinese are building apartments and infrastructure? Buy BHP. The Chinese aren't building as much? Hold or sell BHP.

It's the theme retail investors should concentrate their energy on when they are investing in large caps.

Any thoughts?

 

[galumay]

True (large) pricing errors (based on information in the market) for large, well researched, well run, companies must be few and far between.

My view is that the theme, the macro, is more important. It will tell you when to get in, and when to get out.

Any thoughts?

Ok, I will bite, the evidence throughout history is the opposite, large pricing errors in every strong bull market and the same in every bear market. The 'experts' mainly aligned with the mis-pricing. Plenty of studies into the effect and the psycology that makes this so.

Macro picture has a habit of changing quickly and irrationally, notice the oil price recently? See many tipping that coming? Getting in and out is problematic, it looks easy in hindsight, but unless you are endowed with a lot of luck all you do is miss the highs and miss the lows. Again plenty of studies showing how you only need to be out of the markets a surprisingly few days out of years to miss the best increases. I think Peter Lynch has some good stuff on that in his books from memory.

Most long term investors that I have studied actually suggest the opposite view - ignore the macro and just concentrate on buying quality companies.

 

[ottg]

Most long term investors that I have studied actually suggest the opposite view - ignore the macro and just concentrate on buying quality companies.

Perhaps the questions is how do I determine what is a quality company. Many fundamentalists may have a different opinion on how to determine that until we dive into the detail. For example by looking at intrinsic value, gilt relative value, earnings growth rates, dividend yields etc is all good but do you have to weigh them and by how much? How do you compare them - as a group or by market capitalisation size and/or in the same market segment?