Robusta fundamental, leveraged investments

[robusta]

Orbis have today emerged as substantial investors in MCE

http://www.asx.com.au/asxpdf/20111222/pdf/423gmmmw96fm66.pdf

Orbis describe themselves as a longterm, fundamental, contrarian fund.

All words I would like to be able to spell when I grow up.

 

[suhm]

Wrong time of the year to be kicking a person, constructive feedback is good and robusta's record hasn't been very good, neither has mine this year, we all make mistakes, its whether we learn from them and survive them which is important so when you do get it correct you knock the cover off the ball.
I haven't agreed with robusta's choices but the guy is trying and it is part of the learning process.
You know the saying about the speck and plank, maybe you should post your prospective record and see how that compares.

 

[LifeChoices]

Wrong time of the year to be kicking a person, constructive feedback is good and robusta's record hasn't been very good, neither has mine this year, we all make mistakes, its whether we learn from them and survive them which is important so when you do get it correct you knock the cover off the ball.
I haven't agreed with robusta's choices but the guy is trying and it is part of the learning process.
You know the saying about the speck and plank, maybe you should post your prospective record and see how that compares.

Hey, with all due respect. I believe I have been as honest as I could be - check out my any of my posts and threads I've started. I wouldn't be bothered posting this comment had I not been honest in my thoughts.

I don't want to kick the guy, nor anyone else here - I'm a pacifist. This has been a most entertaining read. Let's not forget that this is a public forum, and if anyone makes certain assumptions. I think I have a right, like anyone else, to say what I think. It is fair game for me or anyone else to question how quickly Robusta has lost his initial investment. We can all see the title of this thread, all I'm doing is questioning it. I expect and receive the same treatment.

What is wrong with that?

 

[robusta]

Wrong time of the year to be kicking a person, constructive feedback is good and robusta's record hasn't been very good, neither has mine this year, we all make mistakes, its whether we learn from them and survive them which is important so when you do get it correct you knock the cover off the ball.
I haven't agreed with robusta's choices but the guy is trying and it is part of the learning process.
You know the saying about the speck and plank, maybe you should post your prospective record and see how that compares.

Thankyou for the kind thoughts suhm as you say all part of the learning process. I would be the first to admit my record has not been good but I am happy with all feedback constructive or not.
Looking at the short term losses in this portfolio it is easy for some to forget that in a couple of years any one of the five businesses I hold could knock the cover off the ball and return the portfolio to a profit.

Hey, with all due respect. I believe I have been as honest as I could be - check out my any of my posts and threads I've started. I wouldn't be bothered posting this comment had I not been honest in my thoughts.

I don't want to kick the guy, nor anyone else here - I'm a pacifist. This has been a most entertaining read. Let's not forget that this is a public forum, and if anyone makes certain assumptions. I think I have a right, like anyone else, to say what I think. It is fair game for me or anyone else to question how quickly Robusta has lost his initial investment. We can all see the title of this thread, all I'm doing is questioning it. I expect and receive the same treatment.

What is wrong with that?

Nothing wrong at all Lifechoices - keep it up.

I will update the portfolio before new year the closed positions do not make pretty reading but there is some hope for the investments I still hold.

 

[Intrinsic Value]

Hey, with all due respect. I believe I have been as honest as I could be - check out my any of my posts and threads I've started. I wouldn't be bothered posting this comment had I not been honest in my thoughts.

I don't want to kick the guy, nor anyone else here - I'm a pacifist. This has been a most entertaining read. Let's not forget that this is a public forum, and if anyone makes certain assumptions. I think I have a right, like anyone else, to say what I think. It is fair game for me or anyone else to question how quickly Robusta has lost his initial investment. We can all see the title of this thread, all I'm doing is questioning it. I expect and receive the same treatment.

What is wrong with that?

Investing is a long game and while in the short term Robusta has made some errors the jury is still out on how some of those stocks may perform in the next 12 months.

I had a great 2010 and was doing ok up to the middle of this year then I sunk like a lead balloon since then.

However I still consider the companies i have invested in as good long term prospects so am still holding.

The biggest mistake i think Robusta made was borrowing money for stocks that are a bit more on the speculative side and may require a lot of swings and roundabouts before they come good. If i was borrowing money i would stick to more conservative stocks yielding high dividends.

I have a strong cash flow and can hold for a long time without any fears or concerns. I am not buying anything more thou just accumulating cash and waiting to see if any stellar bargains appear.

 

[robusta]

PORTFOLIO UPDATE
Closed positions

Bought:
7,142 x TSM @ $0.66 = $4713.72 (25/07/11)
546 x MCE @ $6.95 = $3797.70 (25/07/11)
385 x FGE @ $5.37 = $2067.45 (26/07/11)
291 x FGE @ $5.34 = $1553.94 (27/07/11)
29,524 x SOO @ $0.105 = $3100.02 (01/08/11)
7407 x ZGL @ $0.43 = $3185.01 (05/08/11)
386 x MCE @ $5.15 = $1995.62 (08/08/11)
288 x MIN @ $9.96 = $2686.48 (08/08/11)
809 x MCE @ $4.20 = $3397.80 (24/08/11)
85 xBHP @ $35.60 = $3026.00 (22/09/11)

Subtotal $29,523.74

Sold:
7407 x ZGL @$0.40 = $2962.80
7142 x TSM @$0.49 = $3499.58
29,524x SOO @ $0.10=$2952.40
85 xBHP @$34.93=$2969.05
288 xMIN @$10.18=$2931.84
1741 xMCE @$3.50 = $6093.50
676 x FGE @ $4.53 = $3062.28

Subtotal $24,474.45

Capital gains (losses) ($5049.29)
Interest Paid / bank charges = $1441.55
Brokerage Paid = $418.60
Dividends Received = $453.16 Franking credit = $194.21

Tax Position, Capital Gains (Losses), Brokerage, Interest
($6,456.28) loss Franking credits = $194.21

Open Positions
Bought:
853 x CCP @ $4.48 = $3821.44 26/07/11
1115 x MTU @ $2.62 = $2921.30 08/08/11
520 x CCP @ $3.83 = $1991.60 08/08/11
65 x COH @ $45.85= $2980.25 30/09/11
1373 xOKN @ $1.455 = $1997.72) 23/11/11
837x MCE @ $3.08 = $2577.96 21/12/11

Subtotal $ 16,290.27

Current Portfolio Position

1373 x CCP @ $4.58 = $6288.34
65 x COH @$62.20 =$4043.00
837 x MCE @ $3..10 = $2594.70
1115 x MTU @ $2.89 = $3222.35
1373 x OKN @$1.265= $1736.85

Subtotal = $17885.24


Total realised and unrealised loss -21.37% or - $4,861.31
Cash contributed $880.00 ($40/week)

Realised return on contributed equity -~ 833 %

Return on contributed equity -~652%

Credit available $7946.73

 

[suhm]

Apologies lifechoices, messages and forum posts are terrible for tone and context.

There has been a reasonable amount of turnover in your portfolio which is fine even if you are investing for fundamental reasons but I don't think this was part of your plan.

What is your exit strategy?

Mine is that I buy stock for reason A. If reason A does not happen or changes I usually sell the stock. If it drops greater than about 15-20% I re-evaluate whether reason A is still valid or whether I have misinterpreted the situation. If it is still valid I hold and if it drops more I re-evaluate again and perhaps double down (the opposite of what TA people do I suppose). I actually do the same if it increases by 15-20% and pyramid into the position the same as a trend following TA position but I generally do not hold the second parcel as long if bought on the uptick.

If reason A has not occured but the stock has become quite overpriced I will usually sell about half and wait for reason A unless it is obscenely overpriced when I will sell all with a rough technical signal usually determining my exit point usually price weakness (quite unusual as I buy when I think it is underpriced).

If reason A happens I will hold and see where it ends up then will exit based on criteria on the above paragraph with selling to be more likely if I have identified a more interesting prospect. If it goes down when that occurs I exit on the criteria of the 1st paragraph.

I find it much more important to have a sell strategy than a buy one as the regret for me is much higher when selling if there is a subsequent gain and the pain of taking a loss is much higher than from realising a gain.

Stock investing is not a very psychologically rewarding activity as our minds are usually not wired to handle the way the market works appropriately hence the greater proportion of pathological traits in trading circles as it aides performance. Probably a bit of a controversial statement but seems logical from reading some psych/trader books.

 

[robusta]

There has been a reasonable amount of turnover in your portfolio which is fine even if you are investing for fundamental reasons but I don't think this was part of your plan.

Not at all happy with the turnover, the capital losses and brokerage paid make it obvious mistakes have been made on both the buy and sell decisions.

What is your exit strategy?

Will outline my exit strategy shortly.

 

[skc]

Not at all happy with the turnover, the capital losses and brokerage paid make it obvious mistakes have been made on both the buy and sell decisions.

Will outline my exit strategy shortly.

IMO your BHP, MIN, FGE and probably TSM (even though it is well down on your entry) were pre-mature exits.
Your ZGL and SOO were good exits on the back of poor entry.

With MCE the problem was both entry and exit. Just goes to show why you need to size your position from a risk perspective (as opposed to reward) as one poor decision can skew your performance significantly.

Your portfolio is now looking a lot prettier than before and is well off the bottom. And I trust you've learned valuable lessons without paying an arm and a leg (although that interest bill is pretty expensive!).

Good luck for 2012.

 

[robusta]

PORTFOLIO UPDATE
Closed positions

Bought:
7,142 x TSM @ $0.66 = $4713.72 (25/07/11)
546 x MCE @ $6.95 = $3797.70 (25/07/11)
385 x FGE @ $5.37 = $2067.45 (26/07/11)
291 x FGE @ $5.34 = $1553.94 (27/07/11)
29,524 x SOO @ $0.105 = $3100.02 (01/08/11)
7407 x ZGL @ $0.43 = $3185.01 (05/08/11)
386 x MCE @ $5.15 = $1995.62 (08/08/11)
288 x MIN @ $9.96 = $2686.48 (08/08/11)
809 x MCE @ $4.20 = $3397.80 (24/08/11)
85 xBHP @ $35.60 = $3026.00 (22/09/11)

Subtotal $29,523.74

Sold:
7407 x ZGL @$0.40 = $2962.80
7142 x TSM @$0.49 = $3499.58
29,524x SOO @ $0.10=$2952.40
85 xBHP @$34.93=$2969.05
288 xMIN @$10.18=$2931.84
1741 xMCE @$3.50 = $6093.50
676 x FGE @ $4.53 = $3062.28

Subtotal $24,474.45

Capital gains (losses) ($5049.29)
Interest Paid / bank charges = $1441.55
Brokerage Paid = $418.60

IMO your BHP, MIN, FGE and probably TSM (even though it is well down on your entry) were pre-mature exits.
Your ZGL and SOO were good exits on the back of poor entry.

With MCE the problem was both entry and exit. Just goes to show why you need to size your position from a risk perspective (as opposed to reward) as one poor decision can skew your performance significantly.

Your portfolio is now looking a lot prettier than before and is well off the bottom. And I trust you've learned valuable lessons without paying an arm and a leg (although that interest bill is pretty expensive!).

Good luck for 2012.

Reasons for selling

1) Made a mistake in the buy decision
a. Paid too much (incorrect valuation)
b. Poor portfolio management
c. Did not understand the business (cyclical nature, stability of revenue...)

2) Change in fundamentals (decline in performance or value)

3) Price rises above value

4) Found something superior

ZGL was a combination of 1a, 1b,1c and 2 (however the opportunity to buy below book value at the moment is very attractive

TSM was 1a, 1b, 1c and 2

SOO was 1a, 1b, 1c and 2

BHP was mainly 1b, looking at the macro economic enviroment it would have been more prudent to keep some capital in reserve for future opportunities

MIN was mostly 1b again

MCE was 1a, 1b, 1c and 2 but in a big way particularily 1b- poor portfolio management

FGE mainly 1a and 1b again, time will tell if any other errors were made.

 

[robusta]

I find it much more important to have a sell strategy than a buy one as the regret for me is much higher when selling if there is a subsequent gain and the pain of taking a loss is much higher than from realising a gain.

Stock investing is not a very psychologically rewarding activity as our minds are usually not wired to handle the way the market works appropriately hence the greater proportion of pathological traits in trading circles as it aides performance. Probably a bit of a controversial statement but seems logical from reading some psych/trader books.

Maybe I have a few pathological traits as I do not feel much pain or regret with this portfolio, I am actually enjoying the experience and feel very positive about the future.

 

[So_Cynical]

Reasons for selling

1) Made a mistake in the buy decision
a. Paid too much (incorrect valuation)
b. Poor portfolio management
c. Did not understand the business (cyclical nature, stability of revenue...)

2) Change in fundamentals (decline in performance or value)

3) Price rises above value

4) Found something superior

ZGL was a combination of 1a, 1b,1c and 2 (however the opportunity to buy below book value at the moment is very attractive

TSM was 1a, 1b, 1c and 2

SOO was 1a, 1b, 1c and 2

BHP was mainly 1b, looking at the macro economic enviroment it would have been more prudent to keep some capital in reserve for future opportunities

MIN was mostly 1b again

MCE was 1a, 1b, 1c and 2 but in a big way particularily 1b- poor portfolio management

FGE mainly 1a and 1b again, time will tell if any other errors were made.

Perhaps a bit of over analysis going on here.

Looking at my portfolio and trading performance (long only) over the last 12 months its very clear that buying almost anything from mid April onwards had very little chance of being successful....the general market trend was down, news was negative, sentiment was negative.

For long only punters it was near impossible to close out trades in front...up to mid April i was averaging 1 new winning trade every 3 and a half weeks, since April ive had only 1 winning (new, closed) trade, so 1 new winning trade in 8 months...IMO any entry in any stock had little to no chance of being correct over that time frame ~ 15 April 2011 to 5 Jan 2012...see All Ords chart below.
~

 

[Macros]

Robusta,

Thanks for sharing your journey thus far.

It has been a very difficult period to invest - you aren't alone.

from me...

I like your current portfolio, however it is clearly very concentrated (which I personally like), however it does mean that risk management is much more important and something to be judged frequently.

I'm not sure if you have specifically stated your investment strategy, however it seems to me that it is to invest on the basis of maximising relative value whilst ensuring good quality. At the start of this thread you said something to the tune of this being a fairly boring strategy, but clearly it is not. I invest along the lines of this philosophy and it is actually a highly interesting but highly intensive strategy. It seems as though you have discovered this by having to make many changes.

I think that it is good that you have been able to change and adapt, because this makes us better investors. Unlike some people, I personally think value, or relative value, is in a constant state of flux. I believe that current price is constantly seeking fair value on the basis of future earnings and structure. Therefore what we once thought was stable value, turned out to be very volatile and changing.

As you have stated out of your learnings, macro factors are very important and this is something that I believe in strongly (hence the avatar). Unless one is investing in stable defensive businesses (which we are short of in Aus), then it is very difficult to determine what the macro factors at play will be over a decade. However, it is much easier to guess at over a one to two year period - with constant reassessment. My philosophy is to constantly weigh the macro factors and to determine how I think they will feed through in earnings over the next couple of years.

I like your current portfolio composition, although a couple of pointers (which you probably already have an idea of):

- COH was fantastic value at $50 or below, but has now reached something close to fair value. At this stage I think that it is difficult to gauge what level of growth in value might be possible from here. In any case, it is a quality business and should pay out reliable dividends out of strong cash flows, however, the question is whether that fits in with your investment strategy (if I'm right in maximising value?)

- MCE has continued risks. I was a beneficiary of the big wave upwards but fortunately sold out close to the highs. It is good to see that they are working towards stable contracts, however, it is clearly not out of the woods yet. I have stayed my hand at entering again at $3 because of the lack of certainty and also I had to question whether it had better relative value than other opportunities. My point here is just that it is important to ensure that one is not focused on what they are used to at the expense of looking at better opportunities. I see the upside and understand why you are hanging in there.

- OKN looks to meet all criteria. However my concern is that whilst revenue has held up well, operating and free cash flow look very sickly. I haven't had an in-depth look at OKN so I don't know if there are good reasons why there will turn around soon (and they need to).

Again, thanks for sharing. I'm sure it would be easy to stop updating this thread, however it seems to have been very useful in developing your investment strategy and understanding.

What I have learnt over the past 6 months is that, sometimes, even if I can see excellent relative value, I must accept that macro factors play a much bigger role over the short term. I saw great opportunity in COH at under $50 and TLS recently at $3, however I thought that they didn't meet my criteria as they offered a lesser relative value. What I should have thought was that they had much better defensive characteristics during a period where that quality was important and that short-term opportunities in what I deem to be 'boring' investments can in fact provide the best opportunity. I was too caught up in looking at the value of precious metal producers and the only thing that stopped me having a terrible 6 months was a 100% move in SAR.

 

[Intrinsic Value]

Perhaps a bit of over analysis going on here.

Looking at my portfolio and trading performance (long only) over the last 12 months its very clear that buying almost anything from mid April onwards had very little chance of being successful....the general market trend was down, news was negative, sentiment was negative.

For long only punters it was near impossible to close out trades in front...up to mid April i was averaging 1 new winning trade every 3 and a half weeks, since April ive had only 1 winning (new, closed) trade, so 1 new winning trade in 8 months...IMO any entry in any stock had little to no chance of being correct over that time frame ~ 15 April 2011 to 5 Jan 2012...see All Ords chart below.
~

Yes agree exactly the point i was making too. Not many people ahead over the last 8-9 months.

 

[Macros]

Yes agree exactly the point i was making too. Not many people ahead over the last 8-9 months.

Except a lot has happened in the world and the impact on companies over the last 8-9 months. It does not mean that change is unnecessary.

 

[McLovin]

It does not mean that change is unnecessary.

Leverage changes the equation.

 

[suhm]

Yes agree exactly the point i was making too. Not many people ahead over the last 8-9 months.

My point wasn't really in regards to the performance of Robusta's portfolio but whether he had a systematic way of deciding when he should sell given from commentary seemed to putting forward a long term hold mentality but has had quite a reasonable amount of turnover for such a strategy.

Not many people making enough alpha to have positive returns over the last 9 months, I certainly haven't.

Robusta for point 3) in your selling reason, how do you decide the price is to far above value, as you see there is a problem as price can go a lot lower than value and this also goes in the other direction. How do you maximise the your time on the upwave?

 

[Macros]

Leverage changes the equation.

Only if margin lending is used. Is there a margin loan involved here?

 

[McLovin]

Only if margin lending is used. Is there a margin loan involved here?

It's a lot harder when you know every dollar that you've lost will also have to be paid back. Perhaps illogical but it's the reason I will never leverage equities (or any investment in a business unless I had operational control or something approaching that).

 

[Macros]

It's a lot harder when you know every dollar that you've lost will also have to be paid back. Perhaps illogical but it's the reason I will never leverage equities (or any investment in a business unless I had operational control or something approaching that).

That is a fair enough comment - I guess it depends on the person and how they perceive the risk.