Your top 3 holdings and why you hold them

[Bill M]

I don't doubt that you have thought long and hard about this.

But I have read stories about people who had $250k term deposits in the late 80s / early 90s after society feared that the "sky had fallen in." They were clever ducklings living off the "high interest" with the sleep at night factor of cash investments.

A decade later they were living off meagre incomes. Inflation ate away any wealth they once had.

I am always curious as to when the people in 100% cash (or large %) say enough is enough and try to become active again? What if the market isn't "safe" for another five years in their eyes? ten years?

Not really trying to point fingers, I am just curious as it genuinely does not make sense to me.

You are missing 2 important points here.

1. Your age, for someone in their 40's or 50's they still have 2 or 3 boom and bust cycles left in which to make significant share market gains. Plus they can work and make money and build up their portfolios again. Someone in their 70's or 80's might only have a few years of life left and investing all your capital in a sharemarket portfolio can send you back on the pension if another 55% crash like the GFC event occurs. In that case at the older ages, I would rather take the capital guaranteed cash option.

2. The other point is a healthy large cash base. For example, lets say you had $1 Million cash invested at 8%. It is possible as I know some people secured a term deposit at those rates a couple of years ago. If one only needs 40k a year to live but produces 80k a year income then 40k a year goes on top of that $1 Million capital base. In 5 years time that capital base is now $1.2 Million and compounding every year. If I had that sort of income why would I risk it on stocks when I have more than I need and the capital is Government guaranteed?

 

[Ves]

You are missing 2 important points here.

1. Your age, for someone in their 40's or 50's they still have 2 or 3 boom and bust cycles left in which to make significant share market gains. Plus they can work and make money and build up their portfolios again. Someone in their 70's or 80's might only have a few years of life left and investing all your capital in a sharemarket portfolio can send you back on the pension if another 55% crash like the GFC event occurs. In that case at the older ages, I would rather take the capital guaranteed cash option.

Hi Bill, I understand your point here. I believe that quality companies will still continue paying dividends whilst their capital value recovers to previous levels in the case of a heavy crash. My philosophy of buying for reasons that mean that capital growth / loss does not vindicate my investment decision may have something to do with this view, however. I prefer companies that can generate large amounts of free cash flow to equity as they have the most chance of protecting my purchasing power through business re-investment and dividend income streams. I have seen my capital fluctuate wildly since I started investing, but the dividends are still coming in as planned.

I realise that this approach is not for everyone.

Those caught in mining stocks or heavy cyclicals obviously saw a different scenario unfold and will continue to do so.

2. The other point is a healthy large cash base. For example, lets say you had $1 Million cash invested at 8%. It is possible as I know some people secured a term deposit at those rates a couple of years ago. If one only needs 40k a year to live but produces 80k a year income then 40k a year goes on top of that $1 Million capital base. In 5 years time that capital base is now $1.2 Million and compounding every year. If I had that sort of income why would I risk it on stocks when I have more than I need and the capital is Government guaranteed?

The problem here is you are at risk of the 8% interest not being available again when the five year period comes to maturity. Your income effectively halves if the rates are 4-5% on re-investment. I don't find this risk-free at all. We haven't considered inflation eating into the "compounded" amounts either. If you re-invested 4% (because you spent the other 4%) and inflation was 3% don't you only have $1,050,010 in real terms? What about tax? I take it that we are assuming the generous tax safe haven of "pension mode" in an SMSF.

However, this strategy would work in someone's case such as Julia for a more prolonged period because she has far more capital than she will ever use, I take it? Unfortunately this isn't an option more most retirees.

I can see the benefits of the capital preservation and the government gaurantee, but isn't this capped at $250k going forward?

I do have an amount of cash sitting in my investment property offset account by the way. I am not completely adverse to cash investments and it obviously comes down to what you are trying to achieve in life. It makes sense to have access to some "disaster" money of some sort at any age at the very least.

Thanks again for your thoughts. Enjoying the opportunity to learn from two experienced posters.

 

[Bill M]

I prefer companies that can generate large amounts of free cash flow to equity as they have the most chance of protecting my purchasing power through business re-investment and dividend income streams. I have seen my capital fluctuate wildly since I started investing, but the dividends are still coming in as planned.

Me too and I invest like that myself. But, and the one big but everyone should take note of is that during the GFC my portfolio had to take a dividend cut to the magnitude of 30%. Not only did the share prices half the dividends dropped too. Then just as things were getting real scary nearly all the companies I held were offering share purchase plans at substantial discounts. I had to scrounge around grabbing cash from wherever I could to be in on it. That did by the way pay off very well.

I know where you are coming from and I totally agree but if I was 70 or 80 years old I wouldn't want to go through all that stress.

The problem here is you are at risk of the 8% interest not being available again when the five year period comes to maturity. Your income effectively halves if the rates are 4-5% on re-investment. I don't find this risk-free at all. We haven't considered inflation eating into the "compounded" amounts either. If you re-invested 4% (because you spent the other 4%) and inflation was 3% don't you only have $1,050,010 in real terms? What about tax? I take it that we are assuming the generous tax safe haven of "pension mode" in an SMSF.

However, this strategy would work in someone's case such as Julia for a more prolonged period because she has far more capital than she will ever use, I take it? Unfortunately this isn't an option more most retirees.

I can see the benefits of the capital preservation and the government gaurantee, but isn't this capped at $250k going forward?

You are of course correct, if interest rates dropped to 4%, you wouldn't be making much there and it would be inadequate. Then again, staying still for the last 4 years in cash would have meant your capital would still be 100% in tact. If you were all in stocks, you would still be 40% down.

With the Government guarantee it is 250k per account per bank AFAIK. If you had $1 Million you would split it equally with 4 banks.

Investing has never been easy has it? cheers.

 

[Bede]

PDN
USA
AGE

love undervalued Uranium stocks

 

[Julia]

I don't doubt that you have thought long and hard about this.

No? Why, then, do you go on to argue that my choice of strategy at the present time is unsound?
You do not know my financial situation (and I'm certainly not about to discuss it here).

Inflation ate away any wealth they once had.

If I recall correctly from some of your previous posts, you're young, not that long out of whichever university taught you that inflation is ipso facto always BAD.
People with a bit more life experience will know that inflation can be extremely useful if one takes advantage of when to invest in what asset class.

In the late 70's and early 80's inflation was rampant. Interest rates were high, but so were rents. I turned over both my own home and various investment properties with capital gains of close to 100% p.a. by careful buying in the right areas.
Negative gearing offset the high tax rate I was paying in my job. So inflation was far from a bad thing at that stage.

I am always curious as to when the people in 100% cash (or large %) say enough is enough and try to become active again? What if the market isn't "safe" for another five years in their eyes? ten years?

What if those people have actually managed to calculate that even if this were to be the case, they will still be able to afford a comfortable lifestyle?

What if those people still have an expectation of another two or three decades of life, during which they can think of better things to do than continue to chase more and more money?

Have a look at the Storm Financial thread where a few people who could have funded a reasonable retirement via conservative strategy, were instead lured into that "ever more and more" promise? Many of them lost their houses and everything else they invested.

Why is it, Ves, you don't seem to grasp the concept of "enough"?

I put in many years of rigorous saving, even had to start from scratch in mid 30's after leaving a marriage with nothing. I'm glad I persisted, glad I stuffed money away and reinvested profits, rather than spending it on lots of travel and designer clothes. The whole point was to be able to retire before 'retirement age' and relax enough to be able to enjoy what means most to me now.

Re the $250K limit on the government guarantee, that's hardly a problem. There are plenty of financial institutions into which the funds can be placed as separate investments. I never lodge a term deposit for more than $50K in case circumstances change and I want to break it. It hasn't ever happened but I wouldn't want to get caught with losing the accumulated interest on a much larger amount. The financial institutions just have to spend a bit of time setting up multiple TDs.

Not really trying to point fingers, I am just curious as it genuinely does not make sense to me.

Maybe it will one day. Meantime, you're welcome to take whatever view you wish.

2. The other point is a healthy large cash base. For example, lets say you had $1 Million cash invested at 8%. It is possible as I know some people secured a term deposit at those rates a couple of years ago. If one only needs 40k a year to live but produces 80k a year income then 40k a year goes on top of that $1 Million capital base. In 5 years time that capital base is now $1.2 Million and compounding every year. If I had that sort of income why would I risk it on stocks when I have more than I need and the capital is Government guaranteed?

Exactly.

 

[Ves]

No? Why, then, do you go on to argue that my choice of strategy at the present time is unsound?
You do not know my financial situation (and I'm certainly not about to discuss it here).

Why get so emotional? I didn't say I said it was unsound, I said it was not without risk. Your strategy is obviously completely sound for your circumstances. Unless of course we have a "freak" event of hyperinflation or interest rates completely dry up. Who knows what will happen then? You know this moreso for your own circumstances, and as you said, we do not need to delve into it.

If I recall correctly from some of your previous posts, you're young, not that long out of whichever university taught you that inflation is ipso facto always BAD.
People with a bit more life experience will know that inflation can be extremely useful if one takes advantage of when to invest in what asset class.

Which is why I said:

I prefer companies that can generate large amounts of free cash flow to equity as they have the most chance of protecting my purchasing power through business re-investment and dividend income streams.

Inflation is neither good or bad, but it exists and if you don't abide by it's rules your purchasing power diminishes.

What if those people have actually managed to calculate that even if this were to be the case, they will still be able to afford a comfortable lifestyle?

This was hinted at in my previous post.

Instead of:

However, this strategy would work in someone's case such as Julia for a more prolonged period because she has far more capital than she will ever use, I take it?

I should have been clearer and said:

If you had more capital than you could ever spend in your current lifestyle (assuming you are happy and comfortable), then parking it in cash or low-risk assets would be the best course of action, I take it?

Have a look at the Storm Financial thread where a few people who could have funded a reasonable retirement via conservative strategy, were instead lured into that "ever more and more" promise? Many of them lost their houses and everything else they invested.

Why is it, Ves, you don't seem to grasp the concept of "enough"?

How can I possibly grasp the concept of "enough" when this conversation, up until now, has had no relative context upon which to measure enough against?

Where have I even mentioned that people should be making more money until the day they die? Where have I said they should be putting funds in high-risk alternatives such as Storm Financial Group?

I work in an industry where I am constantly exposed to people who have retirement savings that are either not enough even stop working, or not enough to live the lifestyle that they want to live. However, what is enough for me, may not be enough for them or vice versa. That is not relevant to our conversation but it does inspire me to ask the questions I have.

Re the $250K limit on the government guarantee, that's hardly a problem. There are plenty of financial institutions into which the funds can be placed as separate investments. I never lodge a term deposit for more than $50K in case circumstances change and I want to break it. It hasn't ever happened but I wouldn't want to get caught with losing the accumulated interest on a much larger amount. The financial institutions just have to spend a bit of time setting up multiple TDs.

OK, thanks. That is understood.

The purpose of my interaction with yourself and Bill was to highlight that nothing is risk-free, there is a consequence to being in cash. It has its own advantages and disadvantages. There is often little discussion along these lines, but plenty of people saying "I am in the safety of cash and have been since 2008." Those unlike Bill and yourself who do not have the privilige of yet experiencing an investing life, and do not understand all of the risks, may be impressionable enough to jump into cash because everyone else is saying it is safe and the "right thing to do."

I thought it was pertinent to have a discussion about it. But flippant remarks about "how I am just out of university" and I do not grasp the concept of "enough" (which is ironic, because I only ever mentioned protecting purchasing power, not gaining more) are not helpful in achieving this goal.

 

[qldfrog]

Just out of interest how much would you estimate you spend on brokerage in a year?

a fortune is spent on brokerage but Imoved to Bell direct late last year, overall return since July 2011 around +15% AFTER all costs were deducted (and most of the amount already cashed out)

Per curiosity: I just checked: I spent around 5k in brokerage this financial year on that account

my investor account is at +4% so far inc dividends, and mostly paper win
not that great in comparison .....
Hope it helps

 

[Julia]

Why get so emotional?

Not emotional, just irritated.

I work in an industry where I am constantly exposed to people who have retirement savings that are either not enough even stop working, or not enough to live the lifestyle that they want to live. However, what is enough for me, may not be enough for them or vice versa.

The title of the thread is:
"Your top 3 holdings and why you hold them".
I have duly stated my top three holdings.
There should be no requirement for me to in addition canvas the situations of people other than myself.

Those unlike Bill and yourself who do not have the privilige of yet experiencing an investing life, and do not understand all of the risks, may be impressionable enough to jump into cash because everyone else is saying it is safe and the "right thing to do."

You might like to make a new thread about how impressionable people can make silly decisions. It's a valid topic. Imo it's beyond the scope of and is irrelevant to this thread.

 

[nulla nulla]

Maybe Joe could clean out the off topic posts (including this one) and put them in another thread?

 

[Bill M]

Maybe Joe could clean out the off topic posts (including this one) and put them in another thread?

Nearly ever thread gets side tracked from time to time. Sometimes it is important to address the issue at hand there and then and then move on. Anyway, mine has changed again. My top 3 are:

CBAPA: That is the CBA's PERLS V. I bought them for the yield of around 7.6% gross. Bought at face value of $200 and last traded at $202. Relatively safe and conservative.

NAB: Been in my portfolio for many years, top dividend payer (around 10% gross) and I get a free platinum credit card with all the perks for being a shareholder. Price has stagnated for a while.

TLS: This is in by default. It bumped my other stocks as there has been some upwards price movements. Bought for yield (around10% gross) and may have a good chance of giving shareholders a capital return in the future.

 

[meric]

VAS: You can't lose to the market by buying its index fund.

I used to trade shares. I doubled my investment then lost four fifths of it by not paying attention. I could have used more time educating myself too. I decided I don't have the time therefore I shall buy ETFs instead during economic downturns.

 

[ENP]

CCL- Coca Cola Amatil

I hold this because it has over 20% ROE and has grown it's profits/EPS consistently around or above the 10% mark. It's also a business I'd be happy to hold for a long long time. Coke is always going to be in demand and there is lots of potential expansion into other pacific countries and other markets such as bottled water, etc.

TGA- Thorn Group

I recently bought this as it also has over 20% ROE and has grown it's profits, EPS, etc over the 10% mark. I bought it at a p/e of around 8 and a dividend of around 6% there is lots of room for growth as it is a small-ish company. I also see the downturn and the shift towards more people renting that they will hire fridges, washing machines, etc instead of buy. I looked at a company in the USA called Aarons. It is essentially the same type of business and even with the US economy not doing so well, Aaron's has continued to flourish as a company. I expect the same for thorn.

RYM- Ryman Healthcare (NZX)

I bought this stock about 3 years ago then re-sold it 2 weeks later. It was my first stock and I didn't yet have a handle on my emotions. After some sole searching and long chats to my uncle, I decided to buy back in about a year ago (at a higher price than my original). I bought this stock because it has roe around the 18-25% range over the past few years, is growing it's eps and dividends at a healthy rate well above 10%. I also see the need for retirement villages to grow with the older population needing more of them. They are expanding all over NZ and now overseas in AUS also.

I only hold 3 stocks in total so my top 3 was easy to pick.

I've also been looking into:

ONT- 1300 smiles
GXL- greencross
BKL- blackmores

I haven't bought into these as their price (p/e of around 16-18) and also their profit outlooks for 2012 and beyond are not as good as I'd hope for. The AUS economy seems to be slowing and people are closing their wallets for these type of businesses too.

I find the motley fool website quite good, they are value type investors. I read their articles and they mention stocks in them. I then research the stock myself and come to my own conclusions. I find this easier and less time consuming than going through every single stock in the ASX.

 

[danbradster]

KCN (no. 1 by far): Very cheap trading at PE 4.2 based on my projections for the quarterly due in 2 weeks. I am confident in the upcoming quarterly being highly positive, a large jump from the previous quarterly. Since the previous quarterly the Thailand processing plant has been performing at 20% higher throughput, the effect of last year's flooding will be nil, and permissions for the high grade ore have been granted. Combine these 3 factors and we'll see an awesome quarter.

AOH (reduced since last time): $135m MCap for over 1,000,000t of contained copper resources. Low projected costs providing a wide profit margin, with near term production of 10ktpa and potential for 50ktpa+.

LYC: Clearly high potential having control of a large strategic resource. Potential for magnet JV for example on top of the regular resource sales. Politically complicated, but I presume that will be solved.

 

[McLovin]

GXL- greencross

I found quite a few negative when I looked at these guys. Debt funded growth by acquisition; low growth industry; company with below industry same-store(vet) sales growth; rising payroll costs; low return on assets (marginally higher than their cost of debt); management have said they are getting toward the top of their d/e comfort zone, so a cap raising could be on the way. Iirc, the founders also sold their own vet business to the company, and the returns it was generating was fairly low (but I'd need to double check this).

Just my

 

[So_Cynical]

(3rd-March-2012 ) Not much change...im still stuck in a heap of trades.

• CPU - Computershare 9.83%
• PTM - Platinum Asset Management 8.70%
• ALF - Aust Leaders Fund 7.62%
• ABC - Adelaide Brighton Cement 7.43%

I did take some profit on my HDF position selling a little over half my shares....some of that money going into another small average down into PTM, the rest of the HDF money went into a new position SGH (Slater & Gordon) plus a small average down into ALF.

I haven't added to my CPU position its just that its now worth a little more and has paid a couple of dividends. now 10.55% of my portfolio and still mostly an open position, PTM the same at 8.7%

ALF i took a trade profit of 6.92% and thus reduced my holding considerably...ABC i reduced my position at break even just before the stock had a run up. KSC my new number 3 with a small older parcel, mostly a new open position that has recently had a nice run up putting it into profit...#1 on the sell list as the most likely candidate to get to 15% profit.

 

[Garpal Gumnut]

RIO
IAG
CFX

gg

 

[Bill M]

CBAPA: That is the CBA's PERLS V. I bought them for the yield of around 7.6% gross. Bought at face value of $200 and last traded at $202. Relatively safe and conservative.

NAB: Been in my portfolio for many years, top dividend payer (around 10% gross) and I get a free platinum credit card with all the perks for being a shareholder. Price has stagnated for a while.

TLS: This is in by default. It bumped my other stocks as there has been some upwards price movements. Bought for yield (around10% gross) and may have a good chance of giving shareholders a capital return in the future.

Mines changed a bit over the year. I am focusing on high dividend yield ETF's now as I wish to limit individual company risk, don't want to spend too much time in front of a screen and I am only really chasing income. Any capital growth is a bonus. And now the top 4 are:

CBAPA: Same as above but now the price is up to $205.50. Dividend down to 6.4% due to the lower 3 Month BBSW

SYI: A high Dividend yield ETF. Has all my favourite companies in the fund and I do not have to manage anything myself. All I need to do is buy the dips and collect the dividends. Current gross yield is around 7%. It has gone up around 16% in the last 12 Months.

NAB: Same as above, no change.

Telstra has been sold with profit and all the dividends over the years banked.

 

[Garpal Gumnut]

RIO
IAG
CFX

gg

sorry forgot about reasons

RIO Its the best , a long term hold , should reach $90 imo by midyear.
IAG Bought it low in late Feb 12, a big bet that has paid off. Any sign of weakness and I'll sell
CFX A good earner REITs are a poor man's way of dealing with tenants and making more than a rich man, without the angst of whinging tenants.


gg

 

[Pager]

I only really trade stocks so no core holdings, in my Super though I hold and regularly add to SYI (SPDR MSCI Australia Select High Dividend Yield Fund), its currently on yesterdays close got a yield of over 6% most of which is franked, heavily weighted to the financial sector and most of that is the big 4 banks but they are paying the best dividends so for the time being I cant see its exposure to that sector falling, also pays a quarterly dividend all of which I reinvest, returned about 18% in 2012 (how many super funds can boast there equity portfolios did that ?) so got to be happy, there are other ETF,s available on the ASX run a similar way but when choosing one I thought the State Street option was right for me although all these ETF,s are still fairly new to the ASX, SYI has only been listed for about 2 years.

 

[catfish]

MMS
COH
JIN

All my largest positions because they have all run so hard since purchase. COH looks expensive which ever way you look at it, but it will remain in the portfolio as my favourite. Amazing company, high roa, great product. Huge market potential.

MMS also looks expensive, although I thought this when it was trading on a PE of 14. Still some PE expansion to come I believe, maybe sit at around $15 in a few months in line with other popular div paying stock recently as rates drop.

JIN has run so hard. Great little company in a niche market. It is by far the most volatile stock in my portfolio which also translates to exciting. Will continue to hold as it still appears cheap based on current business in Australia with overseas expansion yet to contribute.