Long Term Investing

[craft]

Hi Craft,

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

You can’t use the the naughty step – I’m already on it.

Which brings me to – Sorry Tech-A, I assumed that your post of 7:00am yesterday in this thread was talking about this thread and the contributions so far too it.

As for the pigs – That shot went straight over my head. I just thought it was a good article you linked too.

[Obviously I have difficulties seeing subtleties in a forum environment]

It’s not my thread – It belongs to whoever has a long term bent in any form or fashion and wants to discuss their thoughts or experience with others also thinking about the long term. Looking at the posters that have appeared, if it goes on as it has started it could become a very useful and fairly unique resource. Hopefully you with your persective will be an active part of it.

 

[Julia]

[Obviously I have difficulties seeing subtleties in a forum environment]

I do also and take the typed word far too literally at times. It makes me realise how much facial expression, tone of voice of etc contribute to clear communication.

 

[George Washingto]

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.

...

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.

I think there is an argument to be made here from someone smarter then myself, about whether or not you are being appropriately compensated for the risk you are taking on with hybrids etc. I.e a couple of percentage points at best above TD's and even online savers.

 

[Bill M]

I think there is an argument to be made here from someone smarter then myself, about whether or not you are being appropriately compensated for the risk you are taking on with hybrids etc. I.e a couple of percentage points at best above TD's and even online savers.

Nothing is without risk except for government guaranteed deposits in bank. There are hundreds of hybrids, notes etc. out there. Some have significant risks and some are low risk, each of them are different. The one question I always ask myself before buying one of these is, is there any risk of the parent company collapsing and you not getting back any of your capital? This risk with certain companies is low compared to a spec mining company or other fully paid ordinary shares. It's all in the prospectus, if you don't feel comfortable then don't buy it, it's as simple as that. As I said before, until I have enough capital to just stick in the bank and live off the interest + keep up with inflation then it has to be risk on, be it shares, property or interest securities, cheers.

 

[So_Cynical]

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.

Very good point Bill, thanks for highlighting this...A true Contrarian play, Interest rate linked security's in a low and falling interest rate environment.

 

[sydboy007]

Very good point Bill, thanks for highlighting this...A true Contrarian play, Interest rate linked security's in a low and falling interest rate environment.

To be honest I think hybrids are the best deal when rates are low as the margin as a % of the total return is higher as BBSW goes lower. The after inflation return will be higher too.

At least most of the new issues are still coming out with a 3% to 4% margin. Some of the hybrids released pre GFC were around 1% so those who had bought them were sitting on some hefty paper losses.

I wish their was an ETF that would invest in a range of Hybrids. Would get good to spread the risk over multiple companies and issues.

 

[whacky]

Hi,
I would like to be a long term investor.

I am quite novice in share trading and would like to know what should the strategy, for my current situation. I have bought a few stocks. Some have risen (+30%) in value and some have fallen (-5/10%), I am still +10% (overall) ahead. I am going to be offloading the one of the -10% performing stock as it has been stagnant for over a year and I want to realise losses and get my capital out. There are couple of stocks that are +45% and +50% green! I am not sure, when should one exit the position? or sell in such circumstances (running +45% green)?

As I am looking at longer term, should I pile up on the outperforming stocks? or should I sell some of the outperforming stock?

 

[robusta]

Hi,
I would like to be a long term investor.

I am quite novice in share trading and would like to know what should the strategy, for my current situation. I have bought a few stocks. Some have risen (+30%) in value and some have fallen (-5/10%), I am still +10% (overall) ahead. I am going to be offloading the one of the -10% performing stock as it has been stagnant for over a year and I want to realise losses and get my capital out. There are couple of stocks that are +45% and +50% green! I am not sure, when should one exit the position? or sell in such circumstances (running +45% green)?

As I am looking at longer term, should I pile up on the outperforming stocks? or should I sell some of the outperforming stock?

If you are looking to become a value investor by definition you need to look at some sort of system to work out the value of a business. It does not and probably can not be too scientific but once you can work out a rough valuation then compare to the price the selling buying or hold decisions are a lot easier.

Take a look at the "Present value of future cash flows" thread a lot of good info there.

 

[Julia]

Alternatively, you could investigate the simple strategy of trend following:
Let your winners run and cut your losses quickly.
Good luck.

 

[Ves]

Alternatively, you could investigate the simple strategy of trend following:
Let your winners run and cut your losses quickly.
Good luck.

Sounds like value-investing to me! However, our view of winners and losers must be different.

 

[odds-on]

I thought I would post a link to website which I feel is a great resource for people thinking about long term investing. Save some dollars straight away by not buying a book!

http://www.retailinvestor.org/

 

[robusta]

Thought the second post might be relevant to this thread.

There was a recent Warren Buffett article out, which I thoroughly enjoyed, because it broke his returns down into a fairly easily replicable ruleset, which is common with the "academic" definition of value investing plus a few twists. Mainly:

* Value (as measured by P/B)
* Low Beta
* High Quality (as measured by earnings volatility, etc)

http://www.cbsnews.com/8301-505123_162-57524029/how-warren-buffett-beats-the-market/

What I would suggest to synthetically replicat this idea is to run 4 portfolios, each started at a different Q, i.e. P1 starts at Q1, P2 at Q2, P3 at Q3 and P4 at Q4. Then you rebalance each portfolio once a year to the following universe:

* Define the top 25% of value stocks
* Of those value stocks define the top 25% with lowest beta and lowest realised volatility
* Of those value low beta stocks define the top 25% with the highest quality

This is your portfolio for the next year. Apply leverage as desired. You can replicate the Buffett float by shorting corporate bonds if desired.

One important thing to note is there was low/no momentum factor explaining his returns, so stay away from stocks making highs if you want a "Buffett" style portfolio.

Keep in mind, the article points out that Buffetts major difference from other large funds was his reputation, so even in the face of a 44% drawdown, he did not suffer many redemptions and certainly no margin calls. I think that is the most important lesson. Do not invest in passive equities if you can't handle a 40-60% drawdown. You must be a "strong hand" (with a strong stomach) to successfully execute this kind of strategy. This also means your natural leverage limit is probably somewhat less than 2:1 and more like 1.5:1 at absolute max.

Here is another article that addresses the same topic, lots of pretty charts included:
http://gestaltu.blogspot.com.au/2013/01/track-records-are-rubbish-or-why.html

Recently a friend and myself were playing around with plotting operations in R.

I was having a great time plotting the monthly return histogram for various stocks, funds, ETFs, etc.

We decided to plot the monthly return profile for Berkshire Hathaway back to 1990.

I was very very surprised to see the distribution of returns, because to me it looked exactly like a traders histogram, that is "cut your losers and let your winners run" skew.

Except, obviously Buffett isn't running stoploss. I am not saying it's easy to replicate this return profile, but at the same time it goes to show you don't necessarily need to hold "winners" (in the momentum sense of the word) to end up with a return profile like this. The proof is that there is 0 explanatory power of momentum in Buffetts portfolio going over many years. It seems that buying quality, low beta assets will (over the long term) provide a natural cut your losers hold your winners type strategy.

View attachment 51286

 

[robusta]

Interesting article entitled, A Lesson on Elementary, Worldly Wisdom As It Relates To Investment Management & Business by some young upstart called Charlie Munger.

http://ycombinator.com/munger.html

 

[VSntchr]

Just read through the entire thread and want to thank everyone for the posts, one of the better threads I've read for a long time - a wealth of experience on show.


As for me, I'm still in the middle of finding my exact niche but I definitely fall into the category of value investor. I try and look for companies trading at big discounts to what I calculate as fair value (am still working hard on honing my skills in valuation).
I have a few sections within my portfolio - 50% for my core/solid/sit and forget businesses that can usually only be bought in times of fear. 40% for companies with strong growth prospects - but they must still have good fundamentals and be trading at least 20% under my fair value. 10% for speculative companies - I've found that I can use this section of my portfolio to gain some additional diversification too - for example AHZ is a company that I think has great potential - but it is very speculative, so it sits in this section...and the added bonus is that it provides me with exposure to the bio-tech sector.

Long-term I expect (and hope!) that my core holdings % will grow as the stocks grow in value. The ultimate vision is that this section provides an ever increasing income stream, while the other sections of my portfolio allow me to exercise my investing skills and try achieve capital growth for further compounding/expenses.


I've probably not added much value upon what has already been posted but thought I'd share my method..

 

[Ves]

There's a guy on Wall Street (and he has been there for 80+ years) called Irving Kahn. From what I've read about him and from those quoting him he sounds like he has a wonderfully positive and reflective attitude towards both (and importantly) life in general and value investing. For a guy who has seen dozens of market crashes, wars, and all sorts of depressing events, his resilience and cheerful outlook has won out, to make him the most enduring value investor of all time. Amazingly he is one of four centenarian siblings.

I think all of us interested in the long-term investing style can learn a lot from his temperament alone.

 

[odds-on]

Thought I would post this in the long term investing thread.

http://nastrading.com/combining-an-...th-trend-following-stock-market-timing-model/

I doubt you could have a simpler long term investing strategy than switching between cash and an index tracker over the course of your investing lifetime - you just need the correct signals! From my own research into interest rate term spread signals you do get a fair warning to exit the market. Does anybody have any suggestions on a suitable Moving Average to use? 6 months sounds right…

 

[MARKETWINNER]

I consider long term investment as best investment in this planet if we can find correct businesses. Long term investment maintains sustainable investment. We can sleep peacefully and need not worry about short term events, interest rate and other short term economic and political crises etc.

 

[robusta]

Found this interesting video on Motley Fool Co-founder David Gardner and how he finds multibaggers.

http://www.youtube.com/watch?v=2nyU4L1llqE

This has challenged a few of my views, I'm often looking at the 52 week lows for opportunities, not the 52 week highs.

 

[Ves]

Just wanted to share the Giverny Capital annual letter to investors, which in fact marks their 20th anniversary of running their portfolio.

It raises some pertinent points about long-term investing and why some are successful and why many others are not as successful as they like.

Giverny Capital is a Canadian firm that (judging by their record) seems to be very successful over the last 20 years using a long-term approach.

The letter can be found here.

 

[KnowThePast]

Just wanted to share the Giverny Capital annual letter to investors, which in fact marks their 20th anniversary of running their portfolio.

It raises some pertinent points about long-term investing and why some are successful and why many others are not as successful as they like.

Giverny Capital is a Canadian firm that (judging by their record) seems to be very successful over the last 20 years using a long-term approach.

The letter can be found here.

Thanks for sharing Ves,

I only had time to read the first couple of pages, but made a not to myself to read all 20 years' worth when time allows.