Robusta fundamental, leveraged investments

[robusta]

Why do you need more time.
The XAO has risen 30% in the last 12 mths.

Two years ago the XAO was two points higher than it was today, the low was 4033 I don't think that sort of volatility will be the norm over a extended period of time however welcome it may be.

What's your nett on $ invested?

See above

By doing the same thing week after week what are you expecting to happen.

Should get more dividends every year and sooner or later there may be some profits taken.

Are there aspects you think you should consider.
Are you happy just to leave it as it is?

There is all ways things to consider but but I think I will give it a bit more of a chance.

 

[Klogg]

The portfolio has only been going for 22 months. This has been a very volatile period for the markets, considering this I think we need a longer period to get a more accurate picture of this investment strategy.

Robusta, love your work to date and think its great you post all your trades/investments.

However, I invest in a very similar fashion (without leverage) and to be honest, make a LOT less transactions than you. And by all accounts, value investing is all about biding your time, waiting for value to come along.

Not sure if you're using this style of investment, but if you are, I would suggest thinking through your choices of companies a lot more, perhaps be a little more picky.

Nevertheless, I still enjoy your posts - thanks again.

 

[tech/a]

Robusta

In my view you should value your portfolio on it's current
Liquidated value.
That's what it's worth at any particular time.
You can close out all positions with a phone call.

Open positions should be included.

 

[craft]

Robusta, love your work to date and think its great you post all your trades/investments.

However, I invest in a very similar fashion (without leverage) and to be honest, make a LOT less transactions than you. And by all accounts, value investing is all about biding your time, waiting for value to come along.

Not sure if you're using this style of investment, but if you are, I would suggest thinking through your choices of companies a lot more, perhaps be a little more picky.

Nevertheless, I still enjoy your posts - thanks again.

Robusta has some great stocks – they must be cause I have 5 of them.

I think we are seeing the level of activity drop as the level of self edumaction grows and stock selection for the long haul becomes more suited.

Those high earning volatility stocks when things are going right for them and are being marked up by the market are very seductive . This caused a bit of activity early on but I suspect that may now be in the past.

Next test will come when we get a decent decline. The margin loan is not going to help psychologically from a volatility of return perspective. (Long term holding is already subject to large drawdown even without leverage) But the biggest risk question is can you avoid a forced liquidation if you say lose your job at the most inconvenient time?

Great thread and great attitude. Despite its success, long term investing is not easy to implement let alone doing it live on a forum.

 

[Intrinsic Value]

I think the margin loan is not a bad play if you are investing in high yielding blue chip stocks like the banks and of course in retrospect that would have been a great play if you had.

I am not so sure it is well suited for fundamental investors as you sometimes need to ride out the storm where stock prices may even half before they eventually come good.

The stock market rise in general is an interesting one because it is heavily skewed towards high yielding safe stocks and very sector centred.

Many small caps and mid caps have missed out and resource related stocks have not done well at all with many accelerating backwards.

 

[robusta]

Robusta, love your work to date and think its great you post all your trades/investments.

However, I invest in a very similar fashion (without leverage) and to be honest, make a LOT less transactions than you. And by all accounts, value investing is all about biding your time, waiting for value to come along.

Not sure if you're using this style of investment, but if you are, I would suggest thinking through your choices of companies a lot more, perhaps be a little more picky.

Nevertheless, I still enjoy your posts - thanks again.

Well, I am trying to be a value investor but you are completely correct I should be way more picky. It took a while to settle on a group of core holdings but there have been too many mistakes both on the buy and sell decisions and in the frequency of those transactions.

Robusta has some great stocks – they must be cause I have 5 of them.

I think we are seeing the level of activity drop as the level of self edumaction grows and stock selection for the long haul becomes more suited.

Those high earning volatility stocks when things are going right for them and are being marked up by the market are very seductive . This caused a bit of activity early on but I suspect that may now be in the past.

Hope you are right, if something with high earning volatility is to be purchased in the future is should be when it is loathed by the market.

Next test will come when we get a decent decline. The margin loan is not going to help psychologically from a volatility of return perspective. (Long term holding is already subject to large drawdown even without leverage)

The volatility of returns should not be a problem to me psychologically, I think my challenge will be to adopt a more conservative stance during a extended bull market. I seem to like to be fully invested, this will hinder my ability to take advantage of future opportunities during bear markets.

But the biggest risk question is can you avoid a forced liquidation if you say lose your job at the most inconvenient time?

Loss of employment, incapacitating illness or divorce are the three mains risks that could force a liquidation of this portfolio.

Great thread and great attitude. Despite its success, long term investing is not easy to implement let alone doing it live on a forum.

Thank you, I will take the compliment on attitude as I think that is my 'edge', my knowledge of accountancy, cash flow analysis, asset valuation, DCF and asset allocation still needs a lot of work however.

 

[robusta]

Robusta

In my view you should value your portfolio on it's current
Liquidated value.
That's what it's worth at any particular time.
You can close out all positions with a phone call.

Open positions should be included.

Thank you tech/a, in the future I intend to show the current liquidated value of the portfolio and also the nett realised returns. This should give a more accurate picture, while the headline figure may look satisfactory at the moment comparing to the nett return will show how much is 'at risk' in the market.

 

[robusta]

I think the margin loan is not a bad play if you are investing in high yielding blue chip stocks like the banks and of course in retrospect that would have been a great play if you had.

I am not so sure it is well suited for fundamental investors as you sometimes need to ride out the storm where stock prices may even half before they eventually come good.

The stock market rise in general is an interesting one because it is heavily skewed towards high yielding safe stocks and very sector centred.

Many small caps and mid caps have missed out and resource related stocks have not done well at all with many accelerating backwards.

The debt attached to this portfolio is a line of credit not a margin loan, so as long as the interest payments are serviced there will be no margin call from the bank.

The hunt for yield and subsequent rise in the prices of blue chip stocks like the banks and Telstra has surprised me, you are right it would have been a great strategy to buy these with leverage a year ago. It would not surprise me to see these stocks go through a long period of under performance into the future.

Many fundamental investors warn against the the use of leverage including Warren Buffett, when you look at his career however he has used cheap leverage on conservative investments throughout via the float from the insurance businesses.

http://www.forbes.com/sites/timwors...t-of-warren-buffetts-success-double-leverage/

 

[Intrinsic Value]

I think you probably could have done better if you had held on to your convictions on quite a few stocks instead of exiting early.

You sometimes have to very patient if you want to be successful as a fundamental investor.

I know I am kicking myself on a few stocks that I got rid off because I thought they weren't performing well enough and they weren't actually moving yet I spend a lot of time researching them and thought they were well undervalued at the time.

MMS springs to mind that I sold at around 7 dollars and CCV at 50c and CCP at 4.00, and ANZ at 22 dollars.

 

[burglar]

... I am kicking myself on a few stocks ...

I found that kicking myself leaves bruises, but suits no useful purpose. :

 

[robusta]

I think you probably could have done better if you had held on to your convictions on quite a few stocks instead of exiting early.

You sometimes have to very patient if you want to be successful as a fundamental investor.

I know I am kicking myself on a few stocks that I got rid off because I thought they weren't performing well enough and they weren't actually moving yet I spend a lot of time researching them and thought they were well undervalued at the time.

MMS springs to mind that I sold at around 7 dollars and CCV at 50c and CCP at 4.00, and ANZ at 22 dollars.

You are right, patience is a virtue. There are too many investments I have sold too early CCP being one of them, but a couple I have held onto have done OK.

On a unrelated topic I like to update my investment on the anniversary of purchase and today it is DTL's turn.

This is my post on the first investment.

New Investment

DTL- Data#3 Limited

1912 x DTL @ $1.045 $1998.04

I have been looking to pick up some DTL for a while now, probably have Wayne Swans horror budget to thank for the opportunity.

High ROE, good dividend yield, nice history of growth.

Take a look at the DTL thread, this is a interesting stock IMO.

A few weeks later the price fell further so I picked up some more.

Investment Increased

Bought 2089 X DTL @ $0.92 = $1921.88

This is basically what I pulled out of CKF, I think the capital has found a better home. In a few years people will be wondering how I managed to pick up DTL under $1.00

So 4001 shares at a cost of $3959.82 (including brokerage) or a touch under $0.99/share.

They have paid me $280.07 in dividends plus $120.03 in franking credits. That is a yield of 7.07% excluding the franking credits. The line of credit is costing 5.95% with the latest round of interest rate cuts still to come.

For what it is worth if you take Fridays closing price of $1.235 the market is valuing my holding at $4941.35

I normally only look at charts about once a year and this is another one that reinforces my decision not to use stop losses. The first chart is for the year preceding my purchase the second is for the year just gone. Both are compared to the XAO.

 

[Klogg]

I normally only look at charts about once a year and this is another one that reinforces my decision not to use stop losses. .

Couldn't agree more.

 

[Huskar]

The debt attached to this portfolio is a line of credit not a margin loan, so as long as the interest payments are serviced there will be no margin call from the bank.

The hunt for yield and subsequent rise in the prices of blue chip stocks like the banks and Telstra has surprised me, you are right it would have been a great strategy to buy these with leverage a year ago. It would not surprise me to see these stocks go through a long period of under performance into the future.

Many fundamental investors warn against the the use of leverage including Warren Buffett, when you look at his career however he has used cheap leverage on conservative investments throughout via the float from the insurance businesses.

http://www.forbes.com/sites/timwors...t-of-warren-buffetts-success-double-leverage/

I'm with you on this for sure and think it is often misunderstood part of Uncle Warren's success. The key lesson for me is to leverage as much as you possibly can provided you can do it intelligently (a big if).

That is what he did but not by the traditional path of borrowing from a bank. He leveraged off of other people's money by getting them to pay him to hold it (as an investment manager). (Somewhere in the Buffett partnership letters WB notes the very impressive ~40% return for the year and continues with "and some wag said it must have been a very good year for me").

Then in Berkshire Hathaway he found another way to leverage by taking advantage of the insurance business model where they are paid for holding other people's money (the float).

Not sure where line of credit on the house would fall into this but while you are ahead it is looking pretty good!

 

[robusta]

I'm with you on this for sure and think it is often misunderstood part of Uncle Warren's success. The key lesson for me is to leverage as much as you possibly can provided you can do it intelligently (a big if).

You are right that is a BIG IF.

That is what he did but not by the traditional path of borrowing from a bank. He leveraged off of other people's money by getting them to pay him to hold it (as an investment manager). (Somewhere in the Buffett partnership letters WB notes the very impressive ~40% return for the year and continues with "and some wag said it must have been a very good year for me").

Then in Berkshire Hathaway he found another way to leverage by taking advantage of the insurance business model where they are paid for holding other people's money (the float).

Not sure where line of credit on the house would fall into this but while you are ahead it is looking pretty good!

Things are looking OK for the moment but less than two years is not enough to judge. The next major challenge will be to see how disciplined I can be when there is not much value around.

A story like this one rouses some contrarian instincts.
http://www.news.com.au/money/invest...he-party-started/story-e6frfmdr-1226646708819

I took some profits today.

Investment Reduced

Sold 466 X MYU @ $6.11 = $2827.31 for a capital gain of $1598.00

This is a little over a third of my holding sold and brings the MTU investment back to 14.7% of my open portfolio at current prices. Unless the price appreciates markedly from here I will be happy to sit back, collect the dividends and read the next annual report.

 

[robusta]

Investment Increased

Hunter Hall hit a 52 week low today, I hold some and had some cash available so picked up another parcel. The danger with this business is a prolonged period of under performance of the funds. Hope we are not in a period like the "nifty fifty" the Americans went through in the 60's and 70's.

Bought 638 @ $2.35 = $1519.25

 

[robusta]

Couple of changes in the last month so here is another PORTFOLIO UPDATE

Since the last update I took some profits in MTU and increased the position in HHL.

The capital gain from MTU of $1598.00 means the capital gain this financial year rises to $2311.59 subtracting this from the previous years loss $3095.16 gives a grand negative total of $783.57, slowly getting my trading back to break even.

So far paid the bank $1794.75 in interest and charges when this is added to last years total of $2303.28 this brings the total I have paid to $4098.03

Received this financial year $1584.97 in dividends plus $615.07 franking credits when we add to last years dividends $960.33 and franking credits $383.34

The total is $2545.30 in dividends plus $998.41 franking credits.

So that is a loss of $2336.30

Better have a look at where the open positions are (including brokerage)

Open Positions
Bought:
649 x MTU @ $2.62 = $1711.99 08/08/11
65 x COH @ $45.85 = $3000.20 30/09/11
1023 x NVT @ $2.93 = $3017.34 02/02/12
972 x TGA @ $1.505 =$1482.81 05/04/12
1074 x TGA @$1.395 =$1518.18 26/04/12
1912 x DTL @1.045 =$2017.99 18/05/12
278 x MTU @$2.66 =$739.48 21/05/12 (rights issue)
2089 x DTL @$0.92 =$1941.83 18/06/12
1412x EZL @ $1.055 = $1509.61 17/07/12
1660 xIPP @ $0.915 = $1538.85 14/11/12
867 x TGA @ $1.745 = $1532.87 20/11/12
1182 xHHL @ $2.85 = $3388.65 23/11/12
717 xHHL @ $2.83 = $2049.06 11/03/13
1910 x IPP @ $0.785 = $1519.30 22/04/13
150 x SRX @ $9.74 = $1480.95 24/04/13
638 xHHL @ $2.35 = $1519.25 30/05/13
Subtotal $ 29,968.35

Current Portfolio Market Value

65 x COH @$64.54 =$4195.10 +39.83%
4001 x DTL @$1.19 =$4761.19 +20.24%
1412 x EZL @ $1.01 = $1426.12 +5.53%
2537 x HHL @ $2.35 =$5961.95 -14.3%
3570 x IPP @ $0.72 = $2570.40 -15.95%
927 x MTU @ $5.42 = $5024.34 +104.95%
1023 x NVT @ $5.62 = $5749.26 +90.54%
150 x SRX @$11.50 =$1725.00 +16.48%
2913 x TGA @ $2.19 =$6379.47 +40.71%

Subtotal = $37,792.83 +26.11%


This brings paper profit considering the open positions to $5488.18

Portfolio market value $37,792.83 minus line of credit drawn of $27,804.92 equals $9987.91 equity.

The $50/week I am throwing at the line of credit now totals $4550.00

Credit available $2195.08

 

[robusta]

Here is a perfect example of why I don't get to exited or depressed about percentage returns at the moment. This post from about three weeks ago.

The portfolio update above shows the nuts and bolts of the investments so far but I thought I should pull out some important figures and have a bit of a look at some percentages...

The line of credit has $29,129.48 drawn from it and I have put $4400.00 of my own cash in, the realized loss from the closed positions is $3792.80, when looking at the open positions however I have made a paper gain of $7694.65 and have $12036.34 in equity in the portfolio. (as at before the market open 13/5)

If we look at the return on the total capital invested ( $29,129.48 + $4400.00) there is a realized loss of -11.31% but a paper profit of 22.77%.

If we look only on the capital I have contributed ($4400.00) then we have a realized loss of -86.2% and a paper profit of 173.55%

The portfolio has only been going for 22 months. This has been a very volatile period for the markets, considering this I think we need a longer period to get a more accurate picture of this investment strategy.

The line of credit has $27,804.92 drawn from it and I have put $4550.00 of my own cash in, the realized loss from the closed positions is $2336.30, when looking at the open positions however I have made a paper gain of $5488.18 and have $9987.91 in equity in the portfolio.

If we look at the return on the total capital invested ( $27,804.92 + $4550.00) there is a realized loss of -7.22% but a paper profit of 16.96%.

If we look only on the capital I have contributed ($4550.00) then we have a realized loss of -51.34% and a paper profit of 120.61%

The combination of leverage and market volatility is making it too early for these returns to mean much.

 

[robusta]

"Amateurs open the market, but professionals close it” is a stock market adage that’s been cited in print since at least 1993. Amateurs submit their trading orders in the morning (after spending the afternoon and evening analyzing events with stockbrokers and family members), but professionals follow market activities throughout the trading day and lock in their positions at the close of trading."

Trading for a Living:
Psychology, trading tactics, money management
By Alexander Elder

For ages I have been banging on on about Cochlear and how I would become interested in buying more if the price got closer to $55.00 the price got close but not close enough and every time I regretted not adding to my position until today... Anyway the price fell around 14% this morning....

Investment Increased

Bought 27 x COH @ $56.23 = $1538.15

The shares finished the day at $52.88, if I had waited I could have almost got another share for the same outlay.

 

[Ves]

For ages I have been banging on on about Cochlear and how I would become interested in buying more if the price got closer to $55.00 the price got close but not close enough and every time I regretted not adding to my position until today... Anyway the price fell around 14% this morning....

I've had similar experiences with a few companies like that recently. I've so far been relentless in my initial judgment. Easier said than done sometimes - in your case it is just over 2%. Mine have been more like 5-10% so I wouldn't beat yourself up too much over it.

If COH is the right company at close to the right price (ie. 2% off what you thought) it will still pay off in the long run. The bold part is more important when we are talking about long-term rounding adjustments.

 

[robusta]

I've had similar experiences with a few companies like that recently. I've so far been relentless in my initial judgment. Easier said than done sometimes - in your case it is just over 2%. Mine have been more like 5-10% so I wouldn't beat yourself up too much over it.

If COH is the right company at close to the right price (ie. 2% off what you thought) it will still pay off in the long run. The bold part is more important when we are talking about long-term rounding adjustments.

Cheers the one thing I am certain of is the buy decision will look either smart or dumb at some point in the future.