Long Term Investing

[craft]

brty

I don't know that your reply will be
Expected by the masses.
Not why they'd want to hear.

Nice post..

I am sure everybody reading this thread enjoyed, appreciated and respected brty’s post. It along with the majority of other posts made so far is exactly what was envisioned and hoped for when starting the thread.

One of the few that is loaded
With experience not theory.

This little underhanded line – probably not so much.

Haven’t you derailed enough threads at ASF?

Only positive and constructive posts in this thread please.

 

[explod]

This little underhanded line – probably not so much.

Haven’t you derailed enough threads at ASF?

Only positive and constructive posts in this thread please.

I made my first trade in 1968, it is a very tough business and not for softly treading angels. Apologies there Tink, Lol.

Tech/a is one of the most accurate and intelligent technical chartists I have encountered.

Sometimes "positive and constructive" input is not what one is seeking, and often what one is seeking is what we would like. All very nice but doomed to fail.

 

[craft]

It’s a shame there is no appreciate button in ASF

Some great posts

Kudos this time to Bill M.

 

[odds-on]

The bit about "there being no secret" in the article that you linked Oddson, is one of the moments of realisation that took me onto the next rung (of many - and I'm still near the bottom) of investment knowledge. It's simple and very sobering.

Hi V,

The fact I found very sobering was that most active money managers underperform the market in the long run, this is probably why I think so much about investment strategy. I read with great interest about the Permanent Portfolio (thank you for that tip), Bogleheads, High Yield Portfolios and extreme saving.

An investor who is comfortable with equity exposure has only three choices:

1. Disciplined saving and averaging into an Index Tracker type portfolio over the course of their lifetime. Many great investment minds recommend this and it requires a couple of hours a year.
2. Disciplined saving and averaging into a simple value or momentum type portfolio (e.g. high yield large caps). A couple of hours a year to manage.
3. “Stock pick”. 10000 hours to find their profitable way

What interests me is has anybody applied approach 2 successfully? There are endless academic studies but what interests me it is how somebody applied it on the ASX over the long term.

Also has anybody just created a random portfolio of a dozen stocks and rebalanced at appropriate periods (taking into account taxation and expenses). To date I have read about a cat, five year old kids, and a pig farmer that beat the professionals – what next a monkey with darts? Or perhaps a chicken that pecks the stocks from the newspaper listing?

Does everybody believe in the “illusion of control” and not accept there is some randomness to it all?

I suppose my main point is do I actually need to spend 10,000 hours. Cannot I get a 2% excess return over the market just by applying a simple system? 2% over 20 years makes a difference between the choice of Merc or a Lexus as my vehicle to get me to golf during my early retirement (fingers crossed).

Cheers

 

[tech/a]

This little underhanded line – probably not so much.

Haven’t you derailed enough threads at ASF?

Only positive and constructive posts in this thread please.

Lets get this clear.

A quick wander through the Stock threads and
in most "Investment type" threads and youll find many posts by individuals who clearly
dont trade. Jam packed full of theory heaps of rehetoric and no regard to how to
manage risk let alone manage a trade or portfolio.

There are a few here who have been through Bull and Bear markets.
Who understand that you dont need to emulate Warren Buffett or
be a George Soros.

These few have information which is often glossed over as its not "colorful".
Or what they want to hear.
Experience---real time honored experience which has a lesson rather than
a possible theorised outcome is rare on these pages.

Often the cut and pasted ramblings of would be's are seen as "Must read"
information.Flawed and un proven trading ideas met with encouragement.
The overwhelming Desire for profit with no or very little regard to Loss.
"I buy for yeild with no care about capital gain" And Ill add no regard to
capital loss!!---a catch cry---applauded!

Only positive constructive posts in this thread.

You cant see the obvious in this comment?

One of the few that is loaded
With experience not theory.

Derailing threads?????---Id say derailing duck comments---more the issue.
Just point me to the derailing and I will desist?

The NO SECRETS ---secret has been well known by many of us.

https://www.aussiestockforums.com/forums/showthread.php?t=25121&highlight=secrets

Constructive enough?

 

[craft]

Hi V,

The fact I found very sobering was that most active money managers underperform the market in the long run, this is probably why I think so much about investment strategy. I read with great interest about the Permanent Portfolio (thank you for that tip), Bogleheads, High Yield Portfolios and extreme saving.

An investor who is comfortable with equity exposure has only three choices:

1. Disciplined saving and averaging into an Index Tracker type portfolio over the course of their lifetime. Many great investment minds recommend this and it requires a couple of hours a year.
2. Disciplined saving and averaging into a simple value or momentum type portfolio (e.g. high yield large caps). A couple of hours a year to manage.
3. “Stock pick”. 10000 hours to find their profitable way

What interests me is has anybody applied approach 2 successfully? There are endless academic studies but what interests me it is how somebody applied it on the ASX over the long term.

Also has anybody just created a random portfolio of a dozen stocks and rebalanced at appropriate periods (taking into account taxation and expenses). To date I have read about a cat, five year old kids, and a pig farmer that beat the professionals – what next a monkey with darts? Or perhaps a chicken that pecks the stocks from the newspaper listing?

Does everybody believe in the “illusion of control” and not accept there is some randomness to it all?

I suppose my main point is do I actually need to spend 10,000 hours. Cannot I get a 2% excess return over the market just by applying a simple system? 2% over 20 years makes a difference between the choice of Merc or a Lexus as my vehicle to get me to golf during my early retirement (fingers crossed).

Cheers

Oddson, sorry Not V but sticking my in anyway.

For 2) to work there either has to be a ‘secret’ that only you can find and exploit or as the article indicates a deficiency that whilst know, still persists so that you can be contrarian enough to exploit it. I’m firmly with V on there being no secret (at least no enduring ones) – that just leaves enduring deficiencies in how humans act.

You may be able to implement a type 2 system with just a few hours work but can you identify the opportunities and stick to your guns in drawdown without a solid foundation.

The hours you mention in 3) are again the foundation – implementation takes very little time.

What is random in a small sample or in the short run can be predictable in a large sample or over the long run.


Cheers

 

[burglar]

... Constructive enough?

I once had a light bulb moment. :
The frequency of light emitted was rare and hard detect.
It was definitely at the trading (TA) end of the spectrum.
I did not turn to the dark side but must acknowledge its existence or perish.

tech/a has seen the light, taken 10,000 hours says he.


I leave this post with a quote:

“The stock market by its very nature is designed for you to lose money. The rallies and reactions within any trend ensure this process is at work constantly. It is created automatically. The market behaves this way because it has to! The weak have to perish so that the strong can survive. Professional traders are fully aware of the weaknesses in traders under stress and will capitalise on this at every opportunity.”

Read more:
free download from “Master the Markets”, Tom Williams

http://www.tradeguider.com/mtm_251058.pdf

 

[Ves]

Does everybody believe in the “illusion of control” and not accept there is some randomness to it all?

I believe that investing is no different to anything else that you will ever do in life - your actions are part of a dynamic system, full of reactions, obstacles, triumphs and defeats. I don't think you can be profitable long-term without accepting the reality that you are not fully in control. Without fully understanding this realisation I think it would be hard to put in place risk assessment / parameters / portfolio rules and everything else that helps you to do everything possible to avoid permanent loss (and therefore continue to be).

I always think of investing as something similar to the Green Mile, taking out scrapings of a massive wall that stands in your way, one grain at a time, until you start seeing light and the end of the tunnel a long way down the track. In the long-run conservatism and probability will help you from collapsing from exhaustion.

Perhaps you consider this to be a leap of faith - and I would agree; it is. Risk is every where, learn how to minimise it, and control what you can, and you can use it to your advantage. Discipline always beats exhuberance in the long-run. It's not as exciting, but it is more effective.

I suppose my main point is do I actually need to spend 10,000 hours. Cannot I get a 2% excess return over the market just by applying a simple system? 2% over 20 years makes a difference between the choice of Merc or a Lexus as my vehicle to get me to golf during my early retirement (fingers crossed).

Cheers

I don't like arbitrary cliches like the "10,000 hour rule" - quantity as opposed to recognisable quality - there can be a large difference! Theory is not the same as practice either - do you count actual market experience as opposed to textbook research in the 10,000 hours? Do you play football games only after you have trained for 10,000 hours? Are you better at something after doing 10,000 hours theory and no actual practice? An arbitrary goal with no qualification of what, how, where, when, why is useless to me. For most there is no gaurantee that 10,000 hours would achieve much at all - because they go about it the wrong way, haphazard and without motivation.

A gifted, and equally motivated person may not need 10,000 hours. Successful people don't need to draw lines in the sand like that.

I've never tried methods 1 or 2 in your post - I'm more of a stock-picker and focus on 3. Mainly because I enjoy it.

 

[Ves]

It’s a shame there is no appreciate button in ASF

Some great posts

Kudos this time to Bill M.

Yes - there is a good collection of interesting experiences and musings building in here now.

 

[craft]

Yes - there is a good collection of interesting experiences and musings building in here now.

And your previous just added one more

 

[prawn_86]

Great thread here, so much useful info.

I have been investing for about 8 years now, so no-where near as long as a lot of members, and feel as though i am only just starting to 'get it' as i have found a style that suits me, which is investing for passive income in solid companies ala ROE, McLovin etc although i wouldnt class myself in their league.

Solid companies at low prices. CAB, FLT, AMP etc when the price is attractive.

While i agree with other members here that many people wont be able to outperform, i think the main thing is that by being involved you meet many people and come across other potential opportunities. If i had just put all my investing money into an index fund 8 yrs ago i would probably be slightly lower than where i am now for a lot less work, but without the friends, knowledge and experience i have gained.

 

[brty]

Before we get sidetracked, I just want to point out the obvious to a couple of posters who seem to be at odds with each other. Please remember that different people have different ways of expressing themselves and because this is only a written forum, often the intent of a post can be lost. What can seem like a barb to one person may not have meant to be one by the other, it is just the way they express themself.

Oddson,

Also has anybody just created a random portfolio of a dozen stocks and rebalanced at appropriate periods (taking into account taxation and expenses). To date I have read about a cat, five year old kids, and a pig farmer that beat the professionals – what next a monkey with darts? Or perhaps a chicken that pecks the stocks from the newspaper listing?

I'm sure many people have done this, I have in the past, but stopped years ago as the results had no meaning to me at the time. If I thought it was worth investigating, that is exactly what I would do. For instance, it is easy to go to a library, look up a 20 year old newspaper, write down the name of the 5th company of each letter of the alphabet, then go home and do the study you suggest. The reason for a 20 year old newspaper is survivorship bias. If you just used existing stocks and went back only using those that were listed 20 years ago, then the results will be different.

Part of the 10,000 hours, mentioned is about knowing how and what to do, then doing it. Just reading the results of others does not allow one to understand the nuances of what you are trying to do.

 

[brty]

Prawn,

While i agree with other members here that many people wont be able to outperform, I think the main thing is that by being involved you meet many people and come across other potential opportunities.

A lot of people get hung up about the "outperform" or be better than some index. My opinion is that this is not necessary, as you have already alluded to. Everyone who comes close to the performance of the indicies over the medium to long term is doing very well. Looking at the XJO and comparing it to STW, a fund that mimicks it, quickly shows that over the years actual performance is behind theoretical performance. The indicies are theoretical.

Studies have shown that the managed funds industry has high withdrawals near market bottoms and maximum contributions near market tops, so those who say they will just use a fund for the long term and are not prepared to do the study of investment, are most likely to not enjoy the long term market movements.

 

[ROE]

People under perform because they have to buy something because
They have cash and FOMO force them to buy into equity...

Buy when you are truely think the business has reasonable prospect
Of delivering higher earnings and sustain dividend after you bought it

No point buying mining business when commodity price at all time high
No point buying Apple in the past year as they already capture
The market and the risk of growing earning is stupidly low.

There are some simple things and common sense you can apply
To equity that require little work or details knowledge and you
Can do well out of it -

Buy stuff cheap with good long term earning prospects then
Long term holding you will do well... I must admit easier said than done
But always aim for that goal and you get better with time..

I can now sort of look at a certain business and can have reasonable
Confident of its earning prospect and the only time I act is price
It must trades at a price I am willing to pay for long term holding and if it never get there

Then I never buy and I buy some other business that fit
In that frame work else cash at call is my prefer option when
I got nothing I like

 

[McLovin]

McLovin,
In 30+ years a lot has changed, ...

Great reply brty, thanks!

There's plenty to learn from old hands like yourself.

What did Kemtron do? It sounds like they made Commodore 64 type things.

 

[Julia]

.

Guess it is a bit like anything in life, if you are motivated and enjoy what you are doing the chances of success are that much better. From my personal experience while I have not been investing long enough for any results to be meaningful, I think investing is the best game I have ever played. So much to learn, so many permutations, part science part art and the chance of earning a decent reward for your efforts... What else would I want to do with my spare time?

That's the ideal, robusta. So much easier when you really love what you do. There are clearly many here who have a similar fascination, especially those who favour a FA approach.

Then there are people like myself who have just gritted our teeth and kept going. I've never really enjoyed participating in the market and have persisted simply out of a determination to eventually reach a position of financial independence and passive income.

I'd be interested in hearing how much your strategy/thinking has changed over the past 30 years. Does what you do today bare any resemblance to what you did when you were starting out? Have you slowly built on your knowledge or have you had complete changes of direction through your investing life?

I hope you won't mind my also responding to this, as well as brty.
No one has thus far mentioned how circumstances can influence and challenge one's plans. It might sound odd, but the worst mistake I ever made was in woeful choice of partner. If you can stay in a stable relationship where you share ideals and goals, imo that's the absolute basis for the future.
Further, if there are two of you working, then obviously that's going to allow you to get ahead more quickly.
Starting again from scratch after many years of saving and investing is quite a challenge that is faced by many.

Most of the discussion here has been related to shares. Bill has talked about his investment property which is working well for him alongside his share investments.

I'd like to see more attention focused on moving between asset classes as market conditions change. Perhaps people do this but it's not getting any mention at present because investment property in most cases offers such a poor yield and questionable capital gain.

Investing in IPs at a time when capital gains were as they are unlikely to be again was what allowed me to have a decent capital base for moving into shares to take advantage of the bull market there.

I am waiting for further growth (the cream on the cake) to liquidate some of my riskier positions in order to buy less riskier ones so when the time comes that we may have another crash I won't lose very much money.

Yes, my attitude also.
When you are building up capital on the way to retirement, presumably earning a salary at the same time, it makes sense to focus on higher returns/higher risk, but having 'got there', capital preservation is my priority.

So, yes, the plan will probably be changed multiple times on the way to retirement, adapting to changing circumstances, both personal and external.

I believe that investing is no different to anything else that you will ever do in life - your actions are part of a dynamic system, full of reactions, obstacles, triumphs and defeats. I don't think you can be profitable long-term without accepting the reality that you are not fully in control. Without fully understanding this realisation I think it would be hard to put in place risk assessment / parameters / portfolio rules and everything else that helps you to do everything possible to avoid permanent loss (and therefore continue to be).

I don't like arbitrary cliches like the "10,000 hour rule" - quantity as opposed to recognisable quality - there can be a large difference! Theory is not the same as practice either - do you count actual market experience as opposed to textbook research in the 10,000 hours? Do you play football games only after you have trained for 10,000 hours? Are you better at something after doing 10,000 hours theory and no actual practice? An arbitrary goal with no qualification of what, how, where, when, why is useless to me. For most there is no gaurantee that 10,000 hours would achieve much at all - because they go about it the wrong way, haphazard and without motivation.

A gifted, and equally motivated person may not need 10,000 hours. Successful people don't need to draw lines in the sand like that.

Two great points, Ves. Well described.

 

[sydboy007]

I'd like to see more attention focused on moving between asset classes as market conditions change. Perhaps people do this but it's not getting any mention at present because investment property in most cases offers such a poor yield and questionable capital gain.

After seeing my super account loose around 30% of it's value during the early-mid stages of the GFC I had a light bulb go off in my head. Interest rates are going to crash, and bonds are going to provide a nice capital growth.

So I moved 80% of my then industry super fund into the local / int fixed interest option. Was nice to be worry free for the next 3 years and seeing my fund earnings in double digits over that time.

No sure what asset class is undervalued now. Suppose there are still a decent number of shares out there still offering 7% yields, though the recent run up of the ASX has made things riskier than a couple of months ago.

I do wish the corporate debt market was far more accessible to retail investors.

I recommend signing up to "the wire" newsletter from FIIG. It's quite educational around what fixed interest can offer you as an investment.

 

[sinner]

Most of the discussion here has been related to shares. Bill has talked about his investment property which is working well for him alongside his share investments.

I'd like to see more attention focused on moving between asset classes as market conditions change. Perhaps people do this but it's not getting any mention at present because investment property in most cases offers such a poor yield and questionable capital gain.

Hi Julia,

I have mentioned this paper before. I think it is a good inspiration starting point:

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=962461

 

[odds-on]

Oddson, sorry Not V but sticking my in anyway.

For 2) to work there either has to be a ‘secret’ that only you can find and exploit or as the article indicates a deficiency that whilst know, still persists so that you can be contrarian enough to exploit it. I’m firmly with V on there being no secret (at least no enduring ones) – that just leaves enduring deficiencies in how humans act.

You may be able to implement a type 2 system with just a few hours work but can you identify the opportunities and stick to your guns in drawdown without a solid foundation.

The hours you mention in 3) are again the foundation – implementation takes very little time.

What is random in a small sample or in the short run can be predictable in a large sample or over the long run.


Cheers

Hi Craft,

Yes there is no enduring ‘secret’ but the enduring deficiencies in how humans act will always provide opportunities for that ‘secret’ to work again. Long term investing is long term, over a 40 year period at least a few ‘secrets’ that worked in the past will work in the future. Investors as part of their education should spend time reading financial history and the classic investment books. Personally I find it very useful to sit and read old investment magazines from a few years back as it is fascinating to read survey results and expert opinions about the future that is now the past! Then go and read the current media, investment magazines, company analysis, forum posts etc. The process generates ideas – recently for me it was “the mining boom is over” and the panic selling of the mining services sector.

The investment timeframe and its impact on returns and decisions is often not discussed enough in many threads. The recent US property crash has provided some fascinating insights into the mind of how successful investors work over a period of many years. One articulate and mature poster (who owned both US property and small businesses) on an investment forum, explained in a post his growing concerns with the US property market over a period of years leading up to the crash– the flip the house TV shows, the discussion with friends, the newspapers and so on. If my memory serves me correct he sold all his property interests 2 years before the crash, much to his relief, though there were a few psychological issues in that 2 years! Paulson and the gang who made their money on the crash have fascinating accounts of the time leading up to the crash, there accounts are similar in nature to the small time investor – the growing sense that all is not right! There is a lot to learn from these type of accounts and they should be incorporated into a long term investing framework.

I apologise about the pig farmer link and admit it was a bit cheeky but I hope it highlights that spending hours reading annual reports may not actually be necessary to make excess returns over the long term. All that maybe required is a contrarian thought process to evaluate the current opinion and use basic value portfolio construction (this is key to minimise risk). In the grand scheme of things, at any point in history of the ASX, an equity investor purchasing a diverse portfolio of 20 dividend paying stocks from the ASX50 will probably not get in too much trouble as long they purchase the portfolio when they are cheap. Working out what is a cheap stock does not take 10,000 hours of study.

As for the random portfolio - I was thinking just pick 20 stocks, hold for a year then sell the lot and pick another 20 stocks. Repeat. The results would be interesting to me.

Sometimes I find these threads get a bit “Tony Robbins” rather than actually giving a investors a reality check about the odds over the long term and thus helping them develop an appropriate circle of competence. As stated previously I do not intend to come across as difficult on this thread, just would like to generate some alternative options for long term investing. Each investor has a different set of personal circumstances, skills and motivations. Each investor will also be exposed to different opportunities - some many only get a one or two decent opportunities.

Julia +1. Very good point about swapping asset classes.

Best of the luck with the thread. I will sit on the naughty step for a while.

Cheers

 

[Bill M]

Lets have a look at interest securities, bonds, hybrids, floating rate notes and convertible shares. I find these don't really get talked about all that much. They form a major part of my portfolio and are mostly long term investments.

Right now a lot of people are talking about the nice run the Aussie stock market has had and interest securities don't get much of a mention. Some Super funds have even placed a warning on their website saying something like

"We believe the potential for ongoing strong returns in this sector is unlikely over the next three to five years because the current level of bond yields is very low."

The way I look at it is that right now I can buy something like the Westpac Capital Notes and get a 6.1% gross dividend return. There are other issues like AGL's AGKHA and that is paying around 7% gross or SVWPA which is Seven Groups preference security and is paying around 9% gross.

Now interest rates are at all time lows, what do you think will happen when rates start moving up? All those Securities pay a spread of interest on top of the 90 or 180 BBSW rate. When the RBA starts raising interest rates the BBSW rates will move upwards also. If the BBSW rates move up to say 5% which is pretty normal then that 6% becomes 8% and that 7% becomes 9% and that 9% becomes 11%. This is why I am getting into these securities now because as sure as night follows day interest rates will start going up in the future.

I posted the above to highlight a general warning that a Super fund put out. But I show that regardless of what they say some fixed interest securities you can buy now can do quite well. Is it really that bad to get 6.1% gross from an interest bearing security that has a chance of some capital gain and higher incomes in the future? Long term Investing comes in many forms.

Note: I hold AGKHA and SVWPA and I am just using them as an example. I have also put in for the Westpac Capital Notes IPO which have not yet been allocated.