Time In The Market

[ROE]

Wow thats really interesting. Can you give some info/links to it?

WOW wasn't a great company before it was recapitalise
using the metrics for measuring wonderful business WOW would be the one to run away from before it was recapitalises.

it has debt to its eyes ball, it cant meet debt repayment, its return on capital is a shocker.

Recapitalise gives it a clean balance sheet, wipes its history clean and start again and turn it into a Great company ...

people has to learn to only invest in wonderful business and a business drowned in debt in my book isnt

 

[mazzatelli]

I study done by brad barber and terrance odean divided thousands of traders into 5 catergories based on how often they turned over their portfolio.

Extremely patient
very patient
patient
impatient
hyperactive

the study found that almost all five groups had exactly the same return before costs they were within 1 percent of each other, after transaction costs though there was a big difference.

Below I list the how much each groups per annum return was reduced by transaction costs.

Extremely patient..... less than 1%
very patient .............1%
patient ....................1.5%
impatient .................3%
hyperactive ..............7%

As a group before transaction costs they beat the market by 0.75%. but after transaction costs all but the Extremely patient failed to beat the market,

The extremly patient group beat the market by 0.5%.
the hyperactive group underperformed the market by >6% (their brokers are happy though)

For anyone interested, I am currently looking at the 2000 paper, and this only includes a comparison of RETAIL accounts to trade equities - so mom and dad investors and traders. No derivatives included either e.g. futures, options etc

 

[Tysonboss1]

Yes for now, but you were a lot younger 27 years ago,

brty

Yes, I was 2. I am currently 29.

 

[skc]

Wow thats really interesting. Can you give some info/links to it?

Perfect timing. A story on the Adsteam collapse...

http://www.theaustralian.com.au/bus...lence-on-adsteam/story-e6frg906-1226091005132

The corollary of the example given by the OP, would be the answer to this question. What "quality stock" today would you be prepared to invest ~$125,000 and keep for the next 27 years, with the assumption you do not have millions to invest?brty

Very true.

I can't think of any company that I would be comfortably invest $125K into with the intention to hold for next 27 years. Hell I don't even know I want to put $12.5K into any company for the next 2 years. Things are changing so fast these days it is difficult to make optimistic assumptions.

 

[Tysonboss1]

I can't think of any company that I would be comfortably invest $125K into with the intention to hold for next 27 years. Hell I don't even know I want to put $12.5K into any company for the next 2 years. Things are changing so fast these days it is difficult to make optimistic assumptions.

I can think of some, and have put amounts similar to that into them. Offcourse It's not a blind buy and hold stratergy, If somthing changed at the company level I may exit

 

[ROE]

I think the general theme for (buy and hold people) is you buy good stocks cheap, you hang around as long as it still a good business and generates adequate return.

You don't buy stock today and sell it next week or next month or even next year.
from my own experience the longer time frame I hold good stocks, the less risky it becomes ..buying stock today and wanting to sell next month is far more risky to your capital...

Valuing and buying a business discount to its intrinsic value takes a time frame of 3-5 years to see the result.

What change in the last decades is people has access to cheap Internet brokerage, instant ticker price and it makes them jumpy and turn over stocks...

The business of selling and buy goods hasn't change much ... Dominos still crank out the same pizza with maybe better ovens, Banks still lend out money at a margin with faster machine, BHP still dig iron ore out of the ground with better machines...

15 or more years ago it was prohibit for anyone to trade stocks and they still doing just fine .....

I remember bought my T1 and Bankwest shares in the 90s .. ...when I sold Telstra and Bankwest for a deposit on the house in 1999 it cost several hundred dollars for a 25K or so worth of share via a broker...

Applied the same cost today, most people wouldn't turn their stock over more than once every few years or unless they need the money for something like a deposit for a house...

 

[ROE]

I can't think of any company that I would be comfortably invest $125K into with the intention to hold for next 27 years. Hell I don't even know I want to put $12.5K into any company for the next 2 years. Things are changing so fast these days it is difficult to make optimistic assumptions.

I'm not mega rich but I have more than that in just 2 stocks... have I sold out? nope? have Greece debt or Japan earth quake make me bail out? nope ...
will any XXX future event make me exit? Nope... in fact if future X event depress the stock I hold where I think it's undervalue I buy more ...

I will exist when I feel the business no longer generate adequate return....

and as long as I'm in there payment comes twice a year and likely to increase each year.... and the capital growth just inch a little higher each year

 

[cynic]

will any XXX future event make me exit? Nope... in fact if future X event depress the stock I hold where I think it's undervalue I buy more ...

That's a courageous strategy! Good luck with that!

I wish I could share your confidence in the longevity of corporations (and other entities) in the current financial climate!

 

[tinhat]

Just to clear up the argument about the value of $14,400 today. In 2010 you needed $37,700 to achieve an equivalent purchasing power of $14,400 in 1984.

Calculated using:
http://www.rba.gov.au/calculator/annualDecimal.html

 

[ENP]

That's a courageous strategy! Good luck with that!

I wish I could share your confidence in the longevity of corporations (and other entities) in the current financial climate!

Nothing wrong with this strategy.

As ROE mentioned earlier, what is happening in US, Greece, Japan, anywhere, etc doesn't matter too much.

Take for example Domino's Pizza. Do you think someone on a Friday night coming home late from work is going to say to his friends... "No sorry, I'm unable to join you for a $6 pizza as the Greece Debt crisis has reduced my appetite for pizza"

No that's not what is going to happen, so makes sense to hold the business.

 

[robusta]

I love all this debt crisis, GFC, disaster, chicken little, the sky is falling attitude.


THIS TOO SHALL PASS

 

[brty]

tinhat,

Just to clear up the argument about the value of $14,400 today. In 2010 you needed $37,700 to achieve an equivalent purchasing power of $14,400 in 1984.

While technically correct within the guidelines of official "inflation", what is being discussed is asset appreciation. $14,400 was about 25% of the value of a median priced house in Melbourne in 1984.

If at the time you were choosing between investments, then we need to discuss the equivalent today, IMHO ~25% of the value of a house.
For example the ~25% of the value of median priced housing rose to nearly double the price of a median house. Median housing rose by ~8.5% pa.
If we took a starting value of ~$500,000 for a median price house and included 8.5% growth over 27 years we get a value of ~$4.5m. Using your $37,700 we only get to ~2m over 27 years using 16% pa growth, less than half a median house.

Hence why we need to start with ~25% of the value of a house now to have equal performance. If the future is bleak and deflationary, houses may go no-where for 27 years, but likewise the best companies are also likely to have a much reduced performance than 16% pa in such an environment, ~8% pa would do.

Now is anyone prepared to name ONE company that is worthwhile to invest ~$125,000 today and leave for the next 27 years?

brty

 

[tothemax6]

I love all this debt crisis, GFC, disaster, chicken little, the sky is falling attitude.
THIS TOO SHALL PASS

No ones eyes are where they should be. How is the EU of any relevance to Australia, or even the US for that matter? We are in the 'Asian hemisphere', if you will.

Those issues will not pass, the EU is a basket case, the UK is a husk, and the US is a farce. The most likely scenario for these countries is a drawn-out decline, bear market, and depressed economy. But all this is not important.

China is yet to have a crash in the construction sector, and it will. When that passes, let me know and I will come back to the table.

 

[Tysonboss1]

tinhat,



While technically correct within the guidelines of official "inflation", what is being discussed is asset appreciation. $14,400 was about 25% of the value of a median priced house in Melbourne in 1984.

If at the time you were choosing between investments, then we need to discuss the equivalent today, IMHO ~25% of the value of a house.
For example the ~25% of the value of median priced housing rose to nearly double the price of a median house. Median housing rose by ~8.5% pa.

Yes thats right, House prices have are not a good guide to inflation because inflation is just one factor that has caused the growth in the median value. the three main factors are.

1, Inflation, (offcourse)
2, Population Growth (increased density)
3, Better more expensive median ( look at the homes of 1984, Much simpler with out the mod cons)

you could also add a fourth factor, 1984 was just prior to a property boom, 2011 is just after a property boom.

 

[Tysonboss1]

Now is anyone prepared to name ONE company that is worthwhile to invest ~$125,000 today and leave for the next 27 years?

brty

I could easily see myself leaving $125,000 in a company for 27years, In 27 years I will be 56 so the timeframe is realistic.

As I stated earlier It would not be a blind 27 year hold though, if somthing dramatically changed I would way up the situation and decide to hold or sell. But I don't buy a company expecting it to run out of steam 1 or 5 or 10 years into the future.

BHP is actually a company I would put in this catergory, It really does have alot going for it that will make it a great businesses to own over time.

1, They have a good mix of long life assets earning a great return on capital invested, in the good years they will earn 25% ROE in the bad years they may earn 10% and probably average 15% over time.

2, The culture of management and directors has the share holders interest at heart and are focused on deploying shareholder capital effiently and returning excess capital to shareholders, in 70 years they have never cut a dividend ( now we have had some badyears during that time)

3, the focus on up stream resource assets create timeless businesses, with complete diversification, every single action that happens in the economy from making cars to making coffee uses thier products regardless of fashions.

Offcourse as I said earlier, I would still be reading every report and annoucement and if an adelaide steamship type situation happened it would be analysed and weighed up.

But a short term economic uncertainy would not make it a candidate for sale.

 

[Tysonboss1]

Those issues will not pass, the EU is a basket case, the UK is a husk, and the US is a farce. The most likely scenario for these countries is a drawn-out decline, bear market, and depressed economy. But all this is not important.

China is yet to have a crash in the construction sector, and it will. When that passes, let me know and I will come back to the table.

Yes, it will pass. It always does.

World wars,
recessions,
union strikes,
depressions,
terrorist attacks,
natural disasters,
labor governments,
stock market crashes,
nuclear melt downs,
Oil shortages,
disease outbreaks,
Y2K,

etc, etc, etc

The human race doesn't avoid problems, But we always over come them. Always.