Personal Investment Strategy

Re: Personal Investment Strategy Help

galumay said:

Given the recent downturn in the market I see a number of stocks on my watch list as being at prices where I am happy to buy in, i intend to put about $100,000 into the market and I have a watch list that sits at about 50 with 20 shares flagged as potential buys, I suspect that is far too many - parcels of $5000 seem a little small.

What sort of strategies do others use to decide on size of parcels relative to total capital and also number of share investments relative to starting capital?

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15-20 max I reckon you can get a lot of diversification with 10-15 stocks
just make sure you don't buy all the big 4 banks and considered that diversification
as that is just one industry and it count as 1 not 4 ...

but if you aren't sure which one to pick for some sector buy 2 of the best and you covered...
you aren't sure WOW or WES I reckon no harm buy both etc...

another good example back in 80s which one would you pick Apple or Microsoft? ...
the answer would be both because picking one you have a chance of being wrong...
and stuffed up your return....

picking both may not deliver absolute highest return but the return of both are
so good it really doesn't matter so it is a better strategy in my opinion anyway.

and it's not a bad time to deploy some capital some value has emerged ... and how much you
into each stock is probably dependent on how confident are you with the business...
CCP sits on 27% of my portfolio, CAB 10% etc.. maybe when it go up another 50% I consider doing something about it
or when I have something important to do with the cash

Re: Personal Investment Strategy Help

Thanks ROE, you were one of the posters that i really admire here that hadnt yet replied to my latest questions!!

I had only picked one bank, I dont find much between all of them but went with Westpac. I hadnt made a final decision with WOW/WES so maybe both is a good idea?

Re: Personal Investment Strategy Help

I was talking to someone about this the other day.

At the moment some general portfolio guidelines that I use personally:

(all figures based on capital outlaid / cost)

As my portfolio is still in its earlier phase and is no where near critical mass I am basing my allocations on a target figure for portfolio size for the next 2-5 years, rather than on current portfolio size (current size would somewhat limit the maximum actual dollar value of a potential position).

Max would be between 15-18 positions. Minimum, at least 10, but preferably 12.

Max size is about 12%. Minimum size should be at least 3% (if I cannot get my full allocation at a reasonable price and my portolio is at or is approaching the quantity limit then I would sell).

I don't sort or filter positions by quality (ie. I don't have positions that would be 12%, others that would be max 8% etc). I either buy something with conviction or I don't bother at all (my company research is where I aim to filter out the dogs and their fleas). The largest determinant is discount to intrinsic value. The larger the discount, the higher the position size ends up being if I can get my fill.

I wouldn't break the portfolio rules for any reason. They are there to protect me from my own impulses. I also don't do short term positions. This is to protect myself from trading price action. I don't want two mistresses. I'm bad enough at trying to keep one!

Re: Personal Investment Strategy Help

Concentration (2-3 stocks max). Cash always available. No leverage.

I think there is tipping point in stock picking where the increase in number of stocks to diversify risk reduces the effectiveness of the judgement/skill of the stock picker to produce excess returns. Finding that tipping point is key.

Cheers

Re: Personal Investment Strategy Help

galumay said:

Given the recent downturn in the market I see a number of stocks on my watch list as being at prices where I am happy to buy in, i intend to put about $100,000 into the market and I have a watch list that sits at about 50 with 20 shares flagged as potential buys, I suspect that is far too many - parcels of $5000 seem a little small.

What sort of strategies do others use to decide on size of parcels relative to total capital and also number of share investments relative to starting capital?

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Setting a minimum number of stocks you will hold when fully invested is a risk measure. For example if you will hold a minimum of 10 stocks when fully invested then the max you can put into any one stock is 10% of your capital at cost.

Setting a Maximum number of stocks you will hold when fully invested is a focus measure. For example if you will hold a maximum of 20 stocks when fully invested then you won't bother investing unless you are prepared to put in at least 5% of your total capital.

Putting boundaries on your focus and risk is probably one of the most important aspects to getting an approach that suits you. - Where the boundaries correctly lie is to a large extent a personal matter and one of how good your analysis and information is. The boundaries once set in during a calm and reflective period should not be adjusted in the heat of raised emotions from market action.

Here’s a similar discussion that occurred some time ago.


https://www.aussiestockforums.com/forums/showthread.php?t=23385&page=12&p=658004&viewfull=1#post658004

Re: Personal Investment Strategy Help

craft said:

I have found this upper limit for portfolio concentration due to market movements to be one of the most challenging aspects of setting boundaries for myself.

You are basically overriding the principle of letting your winners run to protect yourself (Psychologically) from the volatility associated with a major concentration in the portfolio. If you can switch into better perceived value its not so bad - More just a prompt then, to do something you should probably be doing anyway.

Personally I knock the top off anything that pokes it head above 25% of its account.

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I understand what you're saying, craft, and have sometimes followed the same safe path. But in so doing, don't you sometimes reflect on that stock you sold which went on to make another 50%?

As already observed, one's personal circumstances make a significant difference. If you're employed and earning more than enough to live on, and save for the future, then you're obviously in a position to take on more risk.

It's a quite different story once retreating from the work force and relying on generating a reliable income from your capital. My whole risk profile changed then.

Re: Personal Investment Strategy Help

odds-on said:

Concentration (2-3 stocks max). Cash always available. No leverage.

I think there is tipping point in stock picking where the increase in number of stocks to diversify risk reduces the effectiveness of the judgement/skill of the stock picker to produce excess returns. Finding that tipping point is key.

Cheers

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Oddson, you are the 'odd one out' in suggesting such a low number of stocks, I am always interested in contrary viewpoints and the rational for them.

So would you just continue to cull a shortlist of 12 (which happens to be what i have trimmed mine to), until you had the 2-3 you loved the most?

I do notice the longer i look and more i research, the shorter my list gets!

Re: Personal Investment Strategy Help

craft said:

Here’s a similar discussion that occurred some time ago. ...

Click to expand...

Thanks craft, I had read that thread from start to finish having stumbled across it in my research!

Re: Personal Investment Strategy Help

galumay said:

Oddson, you are the 'odd one out' in suggesting such a low number of stocks, I am always interested in contrary viewpoints and the rational for them.

So would you just continue to cull a shortlist of 12 (which happens to be what i have trimmed mine to), until you had the 2-3 you loved the most?

I do notice the longer i look and more i research, the shorter my list gets!

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It depends on your personal circumstances…I allocate capital to stocks as a % of my net worth rather than a % of my stock portfolio. It might seem aggressive but it is not… it is volatile though! From all my reading to date I will be pleasantly surprised that an ordinary investor can achieve decent unleveraged excess returns (CAGR>20%) over a suitable time period (> 5 years) by holding more than 5 to 8 stocks in a portfolio - happy to be proven wrong by those that have.

I think a lot of the time the "risk" in stocks is exaggerated by media and investors. Due diligence (earnings risk) and an appropriate holding timeframe (2-3 years) will greatly minimize the “risk”.

Cheers

Re: Personal Investment Strategy Help

odds-on said:

From all my reading to date I will be pleasantly surprised that an ordinary investor can achieve decent unleveraged excess returns (CAGR>20%) over a suitable time period (> 5 years) by holding more than 5 to 8 stocks in a portfolio - happy to be proven wrong by those that have.

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Perhaps depends on your approach. I can understand that if you're going to be doing lots of assessment about value of a company etc, that would be right. But if, eg, you take a simple trend following approach there's no reason not to hold quite a few more than 8 stocks.

Re: Personal Investment Strategy Help

Its about 4 months since I started this thread and I have done a lot of reading, a lot of research and run a paper portfolio for most of that time.

Today I bought my first parcel of shares since starting the thread, $5000 worth of CAB @ $3.91.

I had CAB on my list marked as too expensive at round the $5 mark, I have considered the potential impact of the legislative changes and believe the market is now undervaluing the share. Even allowing for a 50% drop in dividend payout it would still provide a yield of over 4.5% before franking, and frankly I will be very surprised if they dont do better than that in the medium term.

I guess the thread will get pretty boring from here on, the occasional addition to the portfolio, very little selling I hope, and the infrequent assessment of how we are travelling!

Thanks for all the ideas and recommendations to help my learning and understanding, this forum has given me the confidence to move forward having a strategy and system that hopefully will be a good match for me.

Re: Personal Investment Strategy Help

I decided today my position sizing was too small relative to my capital so i increased my holding in CAB by another $5000, they cost me a couple of cents more at $3-96 but I am happy with the average price of the whole parcel.

I also picked up $10,000 worth of NWH at $1.14 which I reckon is a great price for a company with excellent metrics, working in the industry I really think the so called "end of the mining boom" is widely misunderstood. Its not the end of the industry, mining is still a hugely profitable business for many companies, service companies like NWH will continue to pick up work, although it will slow a bit as the boom eases to normal business.

They are well managed, near debt free, lots of contracted work, diversified with a growing civil sector and even with a massive cut in earnings would still provide above average yield based on their financials.

Re: Personal Investment Strategy Help

Added to the portfolio today with similar sized parcels of TGA, which has been high on my watch list all along, not really much to say about this one, just a good business to own part of, happy to pick it up at $2.03

Also picked up a parcel of SND at $0.73, again it has been on my watch list from the start, the risks are that its dependent on a small number of customers and its pretty illiquid, but its a niche market that they have a high reputation in and again a company I am happy to own part of for the long term.

Looked to pick up some MOC today too, but they just ran away from me at the end of the day, never mind, other opportunities will present!

Re: Personal Investment Strategy Help

Well the falling market is kind to me! Picked up the MOC i wanted at 2.16 today.

Re: Personal Investment Strategy Help

Added 1129 MMS at $8.85 yesterday, this is not part of my long term investing strategy though, its a straight out speculation with money I was prepared to put at risk. I believe the prospects of the price returning to somewhere north of $12 are better than even, I reckon the risk of Labor winning and being able to implement the proposed changes is almost non-existent and I doubt the Coalition in government would implement them.

In hindsight I should have waited 24hrs and picked them up at a better price, but in the end I took the 'bet' at less than $9 which was my cutoff point.

Re: Personal Investment Strategy Help

I picked up 5406 CDA today at $1.85, i have had them on my watch list for a while, felt they were overpriced but the near 20% drop today made them more attractive. I think they are oversold at that price and the market over reacted to some caution about next years outcomes.

Re: Personal Investment Strategy Help

I think I'm turning into a lazy investor, at least within my SMSF.

Finding it easier to use AFI / ARG / IHD for shares - they seem to have reasonable history of good performance.

Throw in some decent yielding bonds and slow n steady is the course I've set, especially after getting my head around sequencing risk.

For a bit of extra yield AYF for hybrids and EPX offering 10%.

Most likely wont be making 20% returns like last FY, but fingers crossed the negative events will be fairly mild. Quite enjoying seeing my strategy is just about at the point where income generated will be more than my employer contributions.

Got to love the magic of compounding interest.

Re: Personal Investment Strategy Help

galumay said:

Around $300K to invest, some will go into a positive geared commercial property where i live, some into cash and the balance into the planned investment strategy.

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As suggested by many others - make sure you do lots of research in relation to investment. You are competing with professional investors with many years of experience.

Don't forget you can save yourself a lot by getting some basics right. People often think that financial advice is just about investment. A good adviser will consider structuring too. For example - suppose you borrow $100,000 to gear into commercial property and pay an interest rate of 7%. And then you invest $100,000 in cash at 4%. Well guess what - you are lending money to the bank at 4% and borrowing it back again at 7%. That's $3,000 down the drain.

Note I have not provided personal advice here.

Re: Personal Investment Strategy Help

In line with my intention to review my portfolio every 3 months or so, its time for the first review. I am mindful that my intention is to invest for the long term and so gains or losses over 3 months are pretty irrelevant.

I guess what is nice to see is my choices outperforming the indexes by a considerable margin - i would be happy with that even in a falling market - i.e. if my portfolio was seeing drawdowns less than the indexes.

I am also mindful of the advice given earlier that in some ways its more dangerous to have good luck when you are starting out as it instills a false sense of ability and skill and share picking.

None the less I am very happy that all my picks are in the black, and an 17% gain across the portfolio is pretty impressive. I have included MMS in my investment portfolio as my thinking has swung around to thinking that its a good investment for the medium to long term at the price I paid.

Even taking MMS out of the investment portfolio leaves returns at nearly 14%



There are two parcels of CAB because I initially bought a parcel of $5000 and then realised it was too small a parcel for my strategy so i doubled up, all other position sizes sine have been the same ($10K)

In hindsight SND have been the best pick probably, got them at a great price and they have flown since then.(just dropped back a little in the last week.)
NWH have done really well in the last couple of weeks, but I went in a bit early, if I had waited I would have got in under $1. Still happy though!
CAB have lost momentum a bit, they were the star early on and carried the slower movers for a couple of months.
CDA was a recent entry, going fine so far.
MOC have trundled along nicely, thanks very much.
TGA haven't been as strong as some others but I remain happy to hold.
MMS looks impressive but we will have to wait until after the election and see how they manage things going forward to be sure I got this one right.

No dividends have flowed yet, that will of course represent real money - any paper gains are just that, and can be wiped out in the flash of an eye.

I would like to offer my sincere and heartfelt thanks to all those who have contributed to my learning journey on ASF, the advice has been invaluable, I have read more books in the last 6 months than the previous 6 years I reckon! The advice has enabled me to have a clear mind about what I was trying to do and settle on a system to support my strategy. I feel like there is an alignment between my personality and what I am trying to do and its here that I learnt how important that is to ensure I sleep well at night!

Re: Personal Investment Strategy Help

I have picked up a couple of new positions,

SIP - I was happy to pick these up for $0.57, i think the market over reacted a bit to their latest results and otherwise they meet my criteria for a buy, happy to pick up the yield and wait for the growth I see coming here.

ITD - a little known micro cap that have a great little business, perhaps the lack of liquidity would scare some off, but with a long term view I am less concerned about liquidity than the strength of the business. Picked up a parcel at $0.30.

I also made my first serious mistake, it was of course one created out of emotion and human psychology rather than an error in my actual analysis. I had been discussing a new strategy to apply to a small amount of my capital, it was a potential alternative way to have some more involvement in the market aside from my long term investment portfolio.

I got to excited by the potential, my desire to apply the new strategy combined with my impatience meant I ended up applying it to entirely the incorrect type of share. Classic case of FOMO! Anyway, almost straight after purchasing the parcel I started to feel uncomfortable with the decision, (something i have not felt with any of my other buys), I went to sleep realising I needed to understand what caused me to make the poor choice and document it to avoid repeating it.

This morning I woke up and on the document i record my trades, with reasons for purchase, exit strategies and notes, I documented where and how I had gone wrong. Then I placed a sell order for the shares and managed to get out with a small profit and a big lesson!

I guess if I can learn hard lessons along the way without losing capital, then thats a bonus. I will certainly be applying the learnings of this mistake in future.