Present Value of Future Cash Flows

[craft]

Why don't we run a test case.

The Fundi experts picks say 5-10 stocks that are undervalued and we trade them longer term and I and the other Techi experts use the same stocks picked by the Fundies but the Techies attempt to out perform the pure Fundi traded portfolio's

If we decide not to trade it give us a few more in the portfolio to have a watch list--say 5 more so say have a stable of 15 and try and get the best performance out of each method.

Run it for a year or 3

I made this suggestion last year when the best fundamental picks for 2014 came out.

View attachment 60803

Was met with horror at even suggesting it!---don't know why.
Surely we can collaborate!

There appears to be lots out there who think combining the two add value so you shouldn't have too much trouble finding a co-collaborator - but FFS if you start it follow it through to the end for once.

You could also unilaterally show (with the live exercise) your trading adds value to everything assertion by trading Robusta's portfolio for example- he runs it live and you are familiar with that thread.

ps

ZIP ZAP also had a thread about trading overlay improving performance - but that ended up going nowhere either.

 

[tech/a]

That is not a valid argument against fundamental investing - Only poor implementation of a strategy ignores evidence to the contrary.

That failure will kill any approach.

Its not meant to be an argument against fundamental investing.

Following the business trend and ignore evidence contrary to our opinion about the business, is no different to following the price trend and ignoring contrary evidence about the price. The former doesn't invalidate FA just as the latter doesn't invalidate TA

Not talking about invalidation---improving.

I want to reply to all of your posts Craft---but about to nick off for the weekend.
Will re visit.

 

[craft]

Howard Marks latest Memo.

http://www.oaktreecapital.com/MemoTree/The%20Lessons%20of%20Oil.pdf

 

[McLovin]

Howard Marks latest Memo.

http://www.oaktreecapital.com/MemoTree/The%20Lessons%20of%20Oil.pdf

You beat me to it. I read that last night. Good read as per usual.

 

[VSntchr]

Howard Marks latest Memo.

http://www.oaktreecapital.com/MemoTree/The%20Lessons%20of%20Oil.pdf

Some excellent bits to ponder from this memo. Thanks craft.

 

[tech/a]

That is not a valid argument against fundamental investing - Only poor implementation of a strategy ignores evidence to the contrary.

That failure will kill any approach.

Following the business trend and ignore evidence contrary to our opinion about the business, is no different to following the price trend and ignoring contrary evidence about the price. The former doesn't invalidate FA just as the latter doesn't invalidate TA

It depends on "The evidence" Price action isn't seen as evidence by many. Infact a falling price is often seen as evidence to buy more even though at the time the stock is undervalued.

Business evidence often takes months to develop and months to prove or disprove ---
By which time you are either spectacularly right or spectacularly wrong or neither.

Maybe its just me but I like to be right or wrong quicker than that!

In addition to the previous post points - Scale.

Try running your test case with a 25M plus account size.

Sure but aren't we discussing this relative to the average trader?

There appears to be lots out there who think combining the two add value so you shouldn't have too much trouble finding a co-collaborator - but FFS if you start it follow it through to the end for once.

Well there are no others by the looks and a clear reason why I lose interest---THERE IS NONE!

You could also unilaterally show (with the live exercise) your trading adds value to everything assertion by trading Robusta's portfolio for example- he runs it live and you are familiar with that thread.

Its not MY TRADING---Its the addition of another element to trading. I may just do something (Using Robustas as a trade source) and report on the trades when I do something---enter---exit--stop-add to it---stop trading it---re enter it---whatever.
Starting from trades he chooses from 1/1/2015

ZIP ZAP also had a thread about trading overlay improving performance - but that ended up going nowhere either.

Yes I think I remember that but will have a look.

 

[craft]

Business evidence often takes months to develop and months to prove or disprove ---
By which time you are either spectacularly right or spectacularly wrong or neither.

Yep

Maybe its just me but I like to be right or wrong quicker than that!

Its not just you - its most of the market participants. The constant reaction to price rather than the business creates the opportunities.



Merry Christmas.

 

[tech/a]

Its not just you - its most of the market participants. The constant reaction to price rather than the business creates the opportunities.



Merry Christmas.

There is reaction to price and there is analysis of price then action taken on that analysis.
Most market participants who react to price react only to direction.
Not the catalyst to that direction nor the accumulation or distribution that happened in that last consultation at that last support/resistance level.

Have a great Xmas and safe 2015

 

[Ves]

craft,

A quick question if you will oblige. Better asked in this thread but with reference to the post you made in the SMSF Returns thread here.

Given the main basis of your strategy is based on cash flow (see post #1 in this thread etc. and lots of other posts in this thread, some recently) with reference to business analysis and not price action, I was a bit confused to read your comment on the rotation between investments due to price momentum. Is this a core part of the strategy (was it always?) or is it just you playing around the edges trying to gain a few % points here and there?

Please don't take my post as a criticism. It's been bugging me (ie. am I missing something?)

Cheers

 

[craft]

craft,

A quick question if you will oblige. Better asked in this thread but with reference to the post you made in the SMSF Returns thread here.

Given the main basis of your strategy is based on cash flow (see post #1 in this thread etc. and lots of other posts in this thread, some recently) with reference to business analysis and not price action, I was a bit confused to read your comment on the rotation between investments due to price momentum. Is this a core part of the strategy (was it always?) or is it just you playing around the edges trying to gain a few % points here and there?

Please don't take my post as a criticism. It's been bugging me (ie. am I missing something?)

Cheers

Nothing has changed.

I was also using that period to sell some stock that had good momentum and replace it with some unloved alternatives

I think this is the line that confused you - Sorry. Let me try and put it another way.

I sold some stock that had in my view become expensive on a cash flow evaluation basis as a result of positive market price momentum and bought some stock that I perceived as much better value (once again on a cash flow basis)

or - if you like

Sold some expensive stuff that was going up to buy some cheap stuff that was going down. (plan being - short term pain for long term gain)


Sell cash flow for more then its worth - Buy cash flow for less then its worth - repeat as often as the market allows - harvesting some earnings multiple expansion spices the return a bit over time - but the underlying backbone to decent long term returns still remains being exposed to good businesses imo.


Cheers

 

[galumay]

......- but the underlying backbone to decent long term returns still remains being exposed to good businesses imo.

Cheers

A great point to keep reminding ourselves!

 

[Ves]

Thanks craft

My ambivalence towards such a concept at the moment could be either:

a philosophical thing: I'm a bit of a hoarder in this respect - I don't like swapping the cash flow back to capital unless the fundamental investment thesis is broken or substantially changed - perhaps mainly because every time I've tried to be clever in this respect I seem to have been worse off compared to "doing nothing."

a practical thing: I don't have the scale - selling usually means selling either all or a very significant portion of my investments.... there's no point trimming off the top to rebalance, brokerage / cap gains tax would be hard to justify unless it was a very compelling opportunity.

Perhaps time & an increased capital base will change my mind. You never know, my mind isn't closed on the matter.

Currently I am also considering the way going forward: perhaps pure 100% stock picking isn't necessarily the only way for me. I would like to continue stock-picking as a core function, but additional asset allocation strategies involving low-cost, low-turnover ETFs might assist me. Not sure yet.

 

[hiddencow]

How does one handle CGT in the rebalancing scenario?
I guess it's a lesser impact in a SMSF scenario especially in TTR or pension phase when it has no impact.

With CGT you get a lesser amount of your capital back to put into buying another stream of cash flows so you will have to be extra confident that the alternative stream will produce higher cash flows in order to do the rebalance. I think this will become more of a problem later in the investment journey where numbers get bigger, attracting higher rates of tax and more gains are accumulated through the years.
This might mean a shifting of strategy more to just holding, and accumulating using new inflows of cash.

 

[Ves]

After a bit more thinking:

The answer for me at the moment is still....

pure 100% stock picking

... and after deciding still to be a lone wolf these....

additional asset allocation strategies involving low-cost, low-turnover ETFs

.... are not relevant at the moment for me.

Will re-visit again in 12 months.

 

[craft]

Will re-visit again in 12 months.

Hi Ves

Have you got the ability to plot your equity curve against the all ords accumulation index yet?

IMO everybody should have this data to assist in the decision of continued active management vs indexing.

Outperformance is a zero sum game (less expenses). Are you better then average? that's a question requiring an objective data source to answer, especially as its a determination made by you about yourself. (biases run wild in this space - that's why the majority think they are better then average)

If you are objectively outperforming the market is it by enough to justify your time?

That's how I evaluate continued active personal management.

 

[Ves]

Hi Ves

Have you got the ability to plot your equity curve against the all ords accumulation index yet?

IMO everybody should have this data to assist in the decision of continued active management vs indexing.

Outperformance is a zero sum game (less expenses). Are you better then average? that's a question requiring an objective data source to answer, especially as its a determination made by you about yourself. (biases run wild in this space - that's why the majority think they are better then average)

If you are objectively outperforming the market is it by enough to justify your time?

That's how I evaluate continued active personal management.

Hi craft

I ended up manually plotting monthly data for the ASX 200 accumulation index direct from the share tables on AFR.com.au

Yes... my returns since I started in April 2011 are above the ASX 200 accumulation index....

My data is based on a unitised valuation of my portfolio at each data point (ie. it is recalculated each time I add funds or reduce funds within portfolio).

If you took today's data point since about October 2013 I have under-performed the benchmark (mainly because of SKE, UGL, DTL). However.... my portfolio did reach all time highs per unit in August 2014.

2014 as a whole I was a few points below the benchmark.

How do you measure your own portfolio risk vs the ASX accumulation indices? How long is a piece of string?

In all honesty, I don't spend an inordinate amount of my spare time managing the portfolio, so it's not really a big consideration. Although some periods are more obsessive than others. It's more the mood swings between self-doubt and self-enthusiasm and whatever in between. Mainly arising from the question: would I achieve my goals by being a passive investor? It's possible I would. On the other hand: am I wasting some skill / talent by being passive? I think they call it cognitive dissonance.

How else do you find out but try? My biggest driver in life is competency. Without it I feel like I'm lost.

I think you probably need between 5-10 years to fairly answer that question. I'm almost tempted to say the first 3-4 years are learning.

I have found through self-reflection that I am unfairly harsh on my own abilities in life (not just investing) and often too kind in my appraisal towards the abilities of others.

 

[Huskar]

Hi Ves

Have you got the ability to plot your equity curve against the all ords accumulation index yet?

IMO everybody should have this data to assist in the decision of continued active management vs indexing.

Outperformance is a zero sum game (less expenses). Are you better then average? that's a question requiring an objective data source to answer, especially as its a determination made by you about yourself. (biases run wild in this space - that's why the majority think they are better then average)

If you are objectively outperforming the market is it by enough to justify your time?

That's how I evaluate continued active personal management.

I couldn't agree more Craft. If you don't measure yourself, you are kidding yourself.

One suggestion is running your portfolio as if it were a fund and then calculating net asset value. This is insensitive to capital inflows and outflows. See here for related discussion https://www.aussiestockforums.com/forums/showthread.php?t=23106&page=10&p=761594#post761594

 

[Ves]

I couldn't agree more Craft. If you don't measure yourself, you are kidding yourself.

One suggestion is running your portfolio as if it were a fund and then calculating net asset value. This is insensitive to capital inflows and outflows. See here for related discussion https://www.aussiestockforums.com/forums/showthread.php?t=23106&page=10&p=761594#post761594

That is the way I have been doing it. Thanks

 

[VSntchr]

I couldn't agree more Craft. If you don't measure yourself, you are kidding yourself.

+2.
In trading, capturing data/metrics/results is paramount if you wish to improve - I think it would be perhaps the most critical of all tasks that should be undertaken.
In investing, it is also important - however the feedback loops are slower. This might mean that the data doesn't feel as important in the short term (as it lacks any ability to offer concrete ideas), but as time wears on the 'helpfulness' of the portfolio tracking vastly improves.

I have witnesses this with my own investing, I started tracking in 2010 and the first year was a real drag. Slowly each year I would rebuild my spreadsheet and automate a few more things, adding in a few additional features, improve the taxation reporting etc...now 4 years later and I love looking into the analytics of my investing performance...it really does provide me with some good information on where I am at with my goals and where to set my goals going forward.

 

[galumay]

I totally agree with what you are all saying, the only proviso I would add is that with long term investing you have to be balanced about your performance in the first couple of years, expecting out performance from the get go is unrealistic. If you have done your job well and found a portfolio of undervalued companies it may take some time for the market to realise the valuation and so underperformance may be the outcome in the short term.

Not withstanding that, I think its essential to set up a process for measure performance, and also a process for regular and frequent review of one's strategy and individual decision making processes around companies that you are invested in.