When do YOU sell?

[ROE]

I notice the day after you posted a Roger Montgomery video about the bad business of Qantas, Qantas posted "underlying earnings before interest and tax rose 175 per cent on last year’s first half". Would a value investor consider Qantas now or perhaps wait to see if consistent year on year profits roll in? The latter meaning paying probably much higher prices if awaiting confirmation. Can a value investor ever buy into a bad company and if so what would be the stop out criteria. A percentage loss or maybe one, two or three bad reports for example.

This is an advice I gave to one of my friend...some years ago when private equity try to take over qantas and they are making record profits....

I told him dont tempt by short term profit, long term you WILL pay

Here are my reasons ...

1. Cost of labour up

2. Cost of fuel up

4. Fix cost are extremely high

3. Very sensitive to hundred of disaster (weather, terror, down turn, accidents)
and this will kill your earning...

5. The only thing that make its money is ticket price and it going down each year

there is serious flaw in the business model

lucky for my friend he didnt buy any Airlines and he never will either.

I rather own business where they have the power to increase price and bring cost down

I never own airlines I dont care if you are uncle monopoly and have the world cover
the business model is flaw

 

[ROE]

Sorry, but these simplistic calculations are simply not achievable in the real world. It really annoys me when I see calculations such as this to show how great compounding interest is. Everyone always forgets to include tax and inflation in their calculations. If you include tax and inflation, your 7.5% return would be more like 1.5%.

7.5% of 200K is 15K, as you say, but you have to pay tax on that, so lets say you're on the 38% tax bracket, that only leaves you with $9,300 of that 15K. So you're only really making 4.65% on your 200K. But wait, there's more - don't forget inflation. Lets say long term inflation is around 3%, so that leaves you with an effective return of only 1.65%. Doesn't look so good now, does it?

I just demonstrate a simple concept of compounding and saving and 7.5% is fairly conservative figure....

of course there are many reasons you can come up with not do it

tax, inflation, recession, down turn, market crash, properties market goes no where
the boom is over, the bear is here to stay

10 years ago I have the same argument with a friend regarding rents and owning your own home

I went ahead and bought my place, he rent (cheaper, no rate, can move any where he want, can get better return from spare money not paying into the mortgage, the list is endless of possibilities)

10 years later he got nothing but face increase rental cost....I live rent free for the rest of my life ....

From my experience the guys that has very little clue about finance and take conservative approach usually win out against the highly

knowledgeable people with high income because they can come up with many ways to save on tax, invest in different assets for better return

I know a bunch of people on extremely ordinary salary, yet they own their own place and have got a fair bit in saving... they aren't too smart with come up with many scheme to get better return.

they just slug away 10-15% of their pay each month and let the world take care of itself...

 

[Sir Osisofliver]

i bought it at 27... looking to sell at 54.
i only have a very tiny number of shares so i figure i'll sell and get the profit and then just keep an eye out for anything worth getting.

i envy you the 10.45 shares dude, if i had a stash of those then yeah i'd definitely be jsut sitting on them and adding it with every dip... but then... if i had a stash of shares at that price... i would've been one seriously savvy 12 year old

thanks for the responses guys! given me a lot to think about..
and thanks for the buffet vid too, it's brilliant how he distills his knack for it down to very simple key concepts...

This is a very telling statement Chaosi - I think you need to become more aware of the cyclical nature of the share market and economic cycles. This might make your brain more squishy but I hope it will help. Cycle analysis is a topic all of it's own and I one I really should put into the newbie thread when I get some time, but here is a quick flyover...


You are holdng CBA which you purchased at a good price after a major corrective cycle of the market. Notice I used the word cycle...because corrective cycles are regular events. I can say with 100% confidence that It'll happen again at some point in the future. If you were to look at our market over the extreme long term you will notice that, on average, corrective cycles happen every 6.8 years with varying degrees (or amplitudes) of correction. Some corrections are deeper than others. Some bull runs are longer than others.

So what causes the cycles to look different? Why aren't they as regular as clockwork? Why can't we predict them precisely?

The market is an expression of the aggregate of several different cycles. These individual cycles which are correlated to the broader cycle in varying amounts have their own degrees of amplitude phase and period. (Amplitude is the depth of swing, Phase is the midpoint of the sine wave, Period as the name suggests is the overall length of the cycle). Examples are the interest rate cycle, exchange rate cycle, commodity cycle, unemployment cycle etc etc. With the market being an aggregate expression of these individual cycles it's only when most or all of these cycles move in the same negative direction that a correction in the broader market and economy occurs.

This means that each cycle looks slightly different to all other cycles, but doesn't change the fact that the cycle will go through a period of boom and bust. Our market rises 80% of the time, leaving 20% of the time for corrective patterns to occur.

Why do I mention this?

You've purchased a stock I would consider to be a blue chip core portfolio stock early in the cycle. If you agree with the assumptions that... if the average length of the cycle is 6.8 years, and the bottom of the market was March 2009... we are only two years into the cycle which has an average length of 4.8 years left to run before the next correction.

Here's the kicker...because of the nature of the cycle, the greatest increase in price occurs in the last third of the cycle. (This is a general rule - not an absolute - Individual stocks can always have variations in price caused by individual circumstances).

So the question becomes...what does continuing to hold CBA COST you? Perhaps continuing to hold CBA may cost you the opportunity to invest in a stock that will return significantly higher (because growth stocks that are sensitive to these cycles really kick on in the last part of the cycle). You need to decide whether this opportunity cost is worthwhile to you - and this will determine whether you are an investor or a trader.

Hope that helps.

Cheers

Sir O

 

[tech/a]

Sir O

Been watching the thread with great interest and havent/dont at the moment ---have the time to devote to a proper response from a technical stand point.

However some terrific comments re long term holding and the resultant excellent profit opportunity and the prospect of using the power of Compounding---leverage is also not to be over looked. I am in complete agreeance on these.

Comments on cycles also pertinent.

But I cant help but ask WHY it seems that there need to be a distinct catagorisation of "Trader" or "Investor"

For the life of me I cannot understand why an experienced investor would not maximise his investment by taking control of it and Trading that investment.

CBA clearly demonstrates and has demonstrated this possiblility for months---as an example.

 

[ChaoSI]

I've so enjoyed this thread, I read it more than once!! Hint.

Since you got them so cheeeep, and the yield is on the purchase price, how did you do on dividends?
They must be really good, I'm guessing!
And did you reinvest them???

hahah yes burg, i did and have reinvested... and i guess i'm going to be doing that a lot more judging by the input i've been getting, Some serious thinking needing to be done.. I guess i'm just a bit too enthusiastic about getting into it... and of many things.. getting into this game is something that cannot be rushed at all...
it's nice to be brought up short and i'm seriously thankful for the feedback to keep me grounded.

But to me selling just because the shares have gone up ( if that is your only reason ) is a poor reason to sell.

ChaoSI, I know it a temptation to want to sell, but if you can hang in there, there can be rewards. A 27c share can reach A $1.00 or more if its a solid company with potential upside.

As an example my av. buy on BHP is $3.04, RIO, $17.81 and CBA $8.93. So over many years and through all the financial fluctations all is well. Best of luck.

Edit: With your shares for these holdings, i'm guessing that altho the original buy price is that, you've accumulated more during the gfc and other troughs and that the avg price is higher now? (if you don't mind me asking)

So the question becomes...what does continuing to hold CBA COST you? Perhaps continuing to hold CBA may cost you the opportunity to invest in a stock that will return significantly higher (because growth stocks that are sensitive to these cycles really kick on in the last part of the cycle). You need to decide whether this opportunity cost is worthwhile to you - and this will determine whether you are an investor or a trader.

Hope that helps.

Cheers

Sir O

i do have some notion of the cyclic nature of economies in general, but yeah i wasn't thinking in the long term, and you're right holding and watching the price rise costs me nothing... and in reality (i'd like to think) that i'll be around for the trough in the cycle..

Anyway, i sense that these are all linked. A lot is dependent on whether I decide to be and Investor or a trader it seems. I'm guessing that this is large part due to the share i'm talking about.. "blue chip" and all and the fact that , really it's not going to be going anywhere except up over the long term (hopefully).

okay i'm not asking for advice so i'll phrase it this way,
the general impression that i'm getting is that, as an alternative option for me selling, (which in my ignorance i've down previously, so that the avg price is now actually $40)
is to hold onto this particular stock use the DRP and buy more when the opportunity arrives and basically amass an increasingly large holding in this stock with the view of selling only if i should need the funds at a much later date? because if i sell now at double, i'll be kicking myself in x years time when it could potentially be worth many times over that?


considering the type of company i'm talking about here, i can see why the numerous points about not selling.

at this stage then. financials account for about 85% of my entire portfolio, seeing as ANZ is in the same boat as CBA ... quantities for those two really shouldn't be decreased, just increased... the other being MQG

the remaining portion is in older stocks that are seriously in the red at the moment. so really all things considered there's really not much i can do with portfolio at the moment, would that be a correct surmise?

 

[kermit345]

hahah yes burg, i did and have reinvested... and i guess i'm going to be doing that a lot more judging by the input i've been getting, Some serious thinking needing to be done.. I guess i'm just a bit too enthusiastic about getting into it... and of many things.. getting into this game is something that cannot be rushed at all...
it's nice to be brought up short and i'm seriously thankful for the feedback to keep me grounded.





Edit: With your shares for these holdings, i'm guessing that altho the original buy price is that, you've accumulated more during the gfc and other troughs and that the avg price is higher now? (if you don't mind me asking)



i do have some notion of the cyclic nature of economies in general, but yeah i wasn't thinking in the long term, and you're right holding and watching the price rise costs me nothing... and in reality (i'd like to think) that i'll be around for the trough in the cycle..

Anyway, i sense that these are all linked. A lot is dependent on whether I decide to be and Investor or a trader it seems. I'm guessing that this is large part due to the share i'm talking about.. "blue chip" and all and the fact that , really it's not going to be going anywhere except up over the long term (hopefully).

okay i'm not asking for advice so i'll phrase it this way,
the general impression that i'm getting is that, as an alternative option for me selling, (which in my ignorance i've down previously, so that the avg price is now actually $40)
is to hold onto this particular stock use the DRP and buy more when the opportunity arrives and basically amass an increasingly large holding in this stock with the view of selling only if i should need the funds at a much later date? because if i sell now at double, i'll be kicking myself in x years time when it could potentially be worth many times over that?


considering the type of company i'm talking about here, i can see why the numerous points about not selling.

at this stage then. financials account for about 85% of my entire portfolio, seeing as ANZ is in the same boat as CBA ... quantities for those two really shouldn't be decreased, just increased... the other being MQG

the remaining portion is in older stocks that are seriously in the red at the moment. so really all things considered there's really not much i can do with portfolio at the moment, would that be a correct surmise?

Theres not really a straight up and down answer with regards to what you should do. There is absolutely nothing wrong with selling, remember if you just hold onto your shares that whole time and simply accumulate on the dips, then your missing out on possibly selling high and re-investing all your capital on a dip which will then provide you even more shares then just accumulation.

Theres no perfect answer, you need to find what suits your style and how much time you can devote to it as well. I don't really have the time to give the long winded version, but you can't just let it sit in CBA because its a good company now, things could change at any stage.

 

[tech/a]

Sir O

But I cant help but ask WHY it seems that there need to be a distinct catagorisation of "Trader" or "Investor"

For the life of me I cannot understand why an experienced investor would not maximise his investment by taking control of it and Trading that investment.

CBA clearly demonstrates and has demonstrated this possiblility for months---as an example.

Which leads to EXACTLY my point.

the remaining portion is in older stocks that are seriously in the red at the moment so really all things considered there's really not much i can do with portfolio at the moment, would that be a correct surmise?

A situation which I really feel you shouldnt "think" your in.
The market is in complete control and you are sacraficing control of your investments to the market---after all a loss isnt a loss until you sell it----RIGHT??

 

[Sir Osisofliver]

Sir O

Been watching the thread with great interest and havent/dont at the moment ---have the time to devote to a proper response from a technical stand point.

However some terrific comments re long term holding and the resultant excellent profit opportunity and the prospect of using the power of Compounding---leverage is also not to be over looked. I am in complete agreeance on these.

Comments on cycles also pertinent.

But I cant help but ask WHY it seems that there need to be a distinct catagorisation of "Trader" or "Investor"

For the life of me I cannot understand why an experienced investor would not maximise his investment by taking control of it and Trading that investment.

I can think of a couple of reasons..

1) Time? I mean you and I like this stuff. We have time to invest in the markets because our employment allow us to do so. If you were a Doctor or any other professional working an 80 hour week however - how much time do you have to devote to a trading system and plan, yet alone spend the time in learning how to do it, plus actually have a life, plus be free and able to trade when the market is open? When do you learn the importance of the activity or do you think it is all too hard and the "I'll just pay someone to do it for me?" mentality sets in.

I set up my core portfolio early in the cycle, ensure it's cash flow positive, maybe look at increasing my core positions once or twice and then I leave it alone. It doesn't need me to do anything with it and its a waste of my time to try and look over all those positions to see if I could squeeze some extra out of it given that the average performance of the market is 220% from trough to peak over the last six cycles of our market. It'd be a waste of my time, which could be better spent concentrating on on my non-core and trading positions.

2) Mentality - As you are aware I have property and equity investments. For the equities I have core - non-core - and trading. The core assets I have are "blue chip" core portfolio stocks that I intend on holding for an extremely long term - over multiple cycles. I barely need to look at these stocks and can glance over them or do a bit of research on them every six months and be reasonable satisfied that I am taking as little risk as possible in the positions. <- These stocks I think of investments, therefore I am an Investor.

If you think of a scale with Investor on one end and trader on the other... non-core stocks sit in the middle. I'll watch them with much greater diligence than the core stocks, and depending on analysis I may actively move into and out of the position based on that analysis. <- These I think of as Active Investing

Trading stock - Short term, systematic trading. I have the potential to earn significant percentage returns in this sections. A LOT more than non-core or core. Compounding at 10%-15%-20% a month in here means that the funds grow quickly - but if I were to put all my eggs into this basket I would do nothing but do this. I know it seems that using a million dollars with leverage in here is no different to using 10+ million with leverage but that is not how my trading system works. My system is more efficient with less funds in it, I don't have issues with slippage or liquidity which erode my consistency and turn my positive expectancy system into a neutral one. (It took me a while to figure out why my equity curve plateau'd). Trading for a living (Whilst I know a lot of people strive to learn how to do this)... is boring, repetitive, lonely and gives me no job satisfaction. <- these I think of as Trading, therefore I am a trader.

Clear?

Cheers
Sir O

 

[Julia]

[
But I cant help but ask WHY it seems that there need to be a distinct catagorisation of "Trader" or "Investor"

For the life of me I cannot understand why an experienced investor would not maximise his investment by taking control of it and Trading that investment.

CBA clearly demonstrates and has demonstrated this possiblility for months---as an example.

Agree. The determination of many to need to classify as trader or investor simply seems unnecessary.

remember if you just hold onto your shares that whole time and simply accumulate on the dips, then your missing out on possibly selling high and re-investing all your capital on a dip which will then provide you even more shares then just accumulation.

Exactly.

 

[Sir Osisofliver]

Which leads to EXACTLY my point.



A situation which I really feel you shouldnt "think" your in.
The market is in complete control and you are sacraficing control of your investments to the market---after all a loss isnt a loss until you sell it----RIGHT??

Anyway, i sense that these are all linked. A lot is dependent on whether I decide to be and Investor or a trader it seems. I'm guessing that this is large part due to the share i'm talking about.. "blue chip" and all and the fact that , really it's not going to be going anywhere except up over the long term (hopefully).

Two things. 1) Any stock is 12 bad news items away from bankruptcy. 2) Those are only the way I define them. Get it clear in your head and define them how you want.

okay i'm not asking for advice so i'll phrase it this way,
the general impression that i'm getting is that, as an alternative option for me selling, (which in my ignorance i've down previously, so that the avg price is now actually $40)
is to hold onto this particular stock use the DRP and buy more when the opportunity arrives and basically amass an increasingly large holding in this stock with the view of selling only if i should need the funds at a much later date? because if i sell now at double, i'll be kicking myself in x years time when it could potentially be worth many times over that?

I generally don't like DRP's - I like to control when I put money into something and prefer to use the dividend stream to pay the leveraging cost.

the remaining portion is in older stocks that are seriously in the red at the moment. so really all things considered there's really not much i can do with portfolio at the moment, would that be a correct surmise?

With the one's in the red...are they "core" stocks? If they are, what you lacked during the GFC was risk management. With the loss of the opportunity to protect these assets, it's up to you whether you think actively trading them will result in a better outcome for you. It may be worthwhile to liquidate and use these funds to select stocks lower that are non-core and can be actively traded.

Cheers

Sir O

 

[tech/a]

Sir O

The question was not one directed at you and your investments.
More so to those who are not as Savvy as yourself.
Your reply does answer to some degree the feelings of some.

I would however question (after the GFC and the resultant recovery) the wisdom in leaving it in the hands of "some" professionals.

If your putting your financial future at risk through others particularly at the time when you wont be in a position to replenish it---late in life---I really question this wisdom---regardless of hrs worked!

 

[Tysonboss1]

Sir O

But I cant help but ask WHY it seems that there need to be a distinct catagorisation of "Trader" or "Investor"

For the life of me I cannot understand why an experienced investor would not maximise his investment by taking control of it and Trading that investment.

.

You can Be both, But I do think you have to have different accounts for the two operations and wear different caps when making dicisions regarding each account.

 

[Tysonboss1]

Agree. The determination of many to need to classify as trader or investor simply seems unnecessary.


.

Considering that Trading and Investing are two completely different things, why would you not make the distinction. I think it is very applicable to this thread, which is about when to sell.

 

[ChaoSI]

i was wondering when somebody would point out the 'other' side.

so really as a trader i would sell the stock ( not necessarily CBA say) take the profit and use the extra capital to reinvest at a later date (even if it might be at a higher price) because you're not playing for large point gains over a long term, more likely just short gains over the short term compounding more regularly. yes?

vs and investor who will continue to add to the quantity of stock that they have and then when the time is right sell ( for whatever reasons it may be, i'm just saying sell cos otherwise there's no change and the stock continues to be held) making a large profit because of the price difference several cycles ago vs the price now (eg the $2 1992 price vs the blah.. 2020 $80 price)


i understand the logic behind both of these positions and naturally Sir O has the right in saying that doing it properly no doubt takes a much higher level of effort, vigilance and competence to pull off correctly. But just in my situation one of the reasons why I was looking at the sell in the first place was because I have so few shares at this point in time.

so for you guys who have ... i dunno.. several thousand of (continuing with ) CBA the having a change from the average purchase price of say $22(?) dollars and then a (whenever) sell price of say $62. Then that's your glorious profit of $40 per share equalling a person's yearly income in a single sale. However i have less than 50 right now.. and even if the price were to blow out to the same level, with my entry price, that's a gain of $22 per share, meaning... a gain of ... less than $1k ?
Had i the savvy earlier in life to purchase and play with stocks back then.. and accumulate say several hundred of these, I'd no doubt be thinking to hold etc. But with so few right now .... i'm not so sure (which is what prompted the post in the first place)

see for anz i have a few more shares, 3 digits at least, so holding them to me doesn't sound that bad at all.
I'm not saying that now is the best time in the cycle or whatever to sell because really I'm barely a novice right now, I'm asking this from a practical standpoint....

A situation which I really feel you shouldnt "think" your in.
The market is in complete control and you are sacraficing control of your investments to the market---after all a loss isnt a loss until you sell it----RIGHT??

Naturally i don't want to be in this situation of being in the red, and I have considered the dilemma or whether I should just take the loss ( a rather large one considering the size of my portfolio) and make the paper loss a real loss, reinvesting and using the money elsewhere. However the true dilemma here would be whether I have the skill, or the time in order to use this money to the best of its ability. My verdict on this has been, the money's been there so long anyway, and because my knowledge is completely insufficient at this stage there's no point in taking the real loss when I can't be sure i can do anything productive with it yet.

With the one's in the red...are they "core" stocks? If they are, what you lacked during the GFC was risk management. With the loss of the opportunity to protect these assets, it's up to you whether you think actively trading them will result in a better outcome for you. It may be worthwhile to liquidate and use these funds to select stocks lower that are non-core and can be actively traded.

to this i will disagree, not because i'm some closet whizz kid but I'm not going to be hard on myself here. What i lacked was a/ knowledge and b/ interest in these things during this time. These were bought by someone else for me then, and i had no interest in keeping with it or anything to do in the share market.


sorry for the massive post.
I'm really enjoying this discussion though.

 

[burglar]

... I'm really enjoying this discussion though.

... Me too!

 

[Tysonboss1]

But just in my situation one of the reasons why I was looking at the sell in the first place was because I have so few shares at this point in time.

However i have less than 50 right now.. and even if the price were to blow out to the same level, with my entry price, that's a gain of $22 per share, meaning... a gain of ... less than $1k ?

At your Stage your best effort should be put into managing your personal finances and creating a situation where you can spend less than you earn and grow your capital base through savings, in the early stages this will provide much better results than micro managing your investments.

 

[tech/a]

and make the paper loss a real loss

I'm afraid that it is a real loss---right now.
It is the liquidated value of your portfolio at this instant.
Just as open profit IS your money.---I often here---I'm playing with "Their" money---!!

Illt a chart tonight and mark up what I mean.
I'm certainly NOT talking short term trading in an investing situation.

Considering that Trading and Investing are two completely different things, why would you not make the distinction. I think it is very applicable to this thread, which is about when to sell.

Could do but dont think you have to.
Ill explain tonight.

 

[Sir Osisofliver]

Sir O

The question was not one directed at you and your investments.
More so to those who are not as Savvy as yourself.
Your reply does answer to some degree the feelings of some.

I would however question (after the GFC and the resultant recovery) the wisdom in leaving it in the hands of "some" professionals.

Well you know I'm detail orientated (read anal retentive) and like to have control. You also know my opinion of most "professionals" so we are in agreement there. But my feeling is that it doesn't require a great degree of education or time to manage a portfolio of core assets.

If your putting your financial future at risk through others particularly at the time when you wont be in a position to replenish it---late in life---I really question this wisdom---regardless of hrs worked!

Yeah always maintain control - its one of the things I tell people is to how to recognize good advice from bad, but trying to do everything yourself can be tricky - especially for newbies.

 

[tech/a]

Yeah always maintain control - its one of the things I tell people is to how to recognize good advice from bad, but trying to do everything yourself can be tricky - especially for newbies.

I'll demonstarte what I believe to be a very simple way of controlling your investment and Minimise risk while Increasing reward.

It works really well with BOTH leverage AND Compounding.

Will use CBA as an example.
I agree with those who look at Core and Non core investments--In the SAME stock--but with a twist.

Until later.
Have to DUCK out!

 

[ChaoSI]

At your Stage your best effort should be put into managing your personal finances and creating a situation where you can spend less than you earn and grow your capital base through savings, in the early stages this will provide much better results than micro managing your investments.

That's assuming 2 things
1/ that i have an income ( i do but just pointing it out)
2/ that i don't already spend less than i earn ( which i do)

so if that's the case then *hypothetically* wouldn't it be reasonable to try and earn more money if there's a chance?

Until later.
Have to DUCK out!

oh gawd.....so horribly awesome