Investor Psychology

[Markblox]

I was reading the recent post about RDSB and it went a bit off topic as it often does so have posted here. I post rarely but read most of it. The comment in question was a suggestion that as prices have gone down, perhaps now was a time to invest more. the answer is below:

To be honest Ian at this stage I am not prepared to commit any more capital to an approach that so far has failed to deliver. When (if ) capital values start to recover I may reconsider.
Terry.

I think I read that the HYP approach has been tried for a year, if that's right then it would seem that instant gratification is expected. Not trying to have a pop at anyone but I do believe that a lot of people are not suited to individual share investments as only time in the markets are the way of ensuring gains.
Reminds me of something that stuck in my memory from over 25 years ago after reading The intelligent investor. That is "Most shares are bought because they have gone up in value and most are sold because they have gone down in value" To be successful you should do the opposite it goes on to say. Worth remembering that the losses you and I have suffered in the last year are not losses at all but just different valuations. The first third of that great book is all about psychology and worth reading as it will help you understand what type of mindset you have and your suitability to invest in different ways. If you can't see lower prices as an opportunity then perhaps it isn't for you. Reading the book could save a lot of investors a lot of money.

Moderator Message:
edited to correct quote. Moved to "other HY board" as post is not practical question more a strategy of the mind. Raptor.

[johnhemming]

The price of commodity extractors has to be driven substantially by expectations as to commodity prices. Of all the really big Oil extractors I think only Total has dividend cover. (meaning more than 1)

[Dod101]

Thanks Markblox. I think this an area that needs to be explored.

I have been investing seriously only since I returned to live in the UK in 1991 and have held some of my best shares since about that time, HSBC, Unilever, Legal & General and maybe one or two others.

Certainly one year or so is far too short a time to be judging any investment strategy. I would advocate sticking with a strategy for at least five years in order to make any judgement. And with respect, I do not think you would then necessarily be judging the strategy. I have no doubt for instance that HYP works; but one's own attitude to it may not be compatible. it will not appear to work every year. No share and few portfolios rise in a straight line and in any case it needs to be remembered again and again that HYP is an income strategy not a total return one.

As for Benjamin Graham, of course he is an excellent read but as for buying low, certainly that is a great idea but the trouble is trying to distinguish between a share being cheap (as in good value) and cheap because of a problem, real or imagined. That is why to me strategic ignorance is intellectual laziness. We must at least try to distinguish between the two and if we are not prepared to then we must rely on time in the market, ignoring short term fluctuations. Plenty of posters have made the disastrous mistake of commenting on a share price 'coming down nicely' only to find that the reason is that the dividend is shaky or a profits warning appears a couple of months later.

Experience certainly helps but no one will ever get it right every time and the old saying 'Know thyself' is probably the best investing advice any of us will get.

Dod

[TUK020]

To be honest Ian at this stage I am not prepared to commit any more capital to an approach that so far has failed to deliver. When (if ) capital values start to recover I may reconsider.
Terry.

I think I read that the HYP approach has been tried for a year, if that's right then it would seem that instant gratification is expected.

That seems to be a little unfair.
Terry is saying 'wait and see if it starts working before adding to it', not 'I am giving up on it'.

[idpickering]

I was reading the recent post about RDSB and it went a bit off topic as it often does so have posted here. I post rarely but read most of it. The comment in question was a suggestion that as prices have gone down, perhaps now was a time to invest more. the answer is below:

To be honest Ian at this stage I am not prepared to commit any more capital to an approach that so far has failed to deliver. When (if ) capital values start to recover I may reconsider.
Terry.

I think I read that the HYP approach has been tried for a year, if that's right then it would seem that instant gratification is expected. Not trying to have a pop at anyone but I do believe that a lot of people are not suited to individual share investments as only time in the markets are the way of ensuring gains.
Reminds me of something that stuck in my memory from over 25 years ago after reading The intelligent investor. That is "Most shares are bought because they have gone up in value and most are sold because they have gone down in value" To be successful you should do the opposite it goes on to say. Worth remembering that the losses you and I have suffered in the last year are not losses at all but just different valuations. The first third of that great book is all about psychology and worth reading as it will help you understand what type of mindset you have and your suitability to invest in different ways. If you can't see lower prices as an opportunity then perhaps it isn't for you. Reading the book could save a lot of investors a lot of money.

Moderator Message:
edited to correct quote. Moved to "other HY board" as post is not practical question more a strategy of the mind. Raptor.

A fine post indeed Markblox, it was my comment regarding buying whilst shares are maybe temporarily lower in share price, that resulted in the reply you quoted above. Great reference to a superb book and a must read also. On the buy low aspect, it is something I always try to do, after all, we all like a bargain. If you can pick up a great share on the cheap, and secure a higher yield in the process, all the better. I doubled my holdings in Shell (RDSB) last year during their down turn. That was a great buy, for a long term hold, as in theory, they all should be.

Ian.

[Markblox]

That seems to be a little unfair.
Terry is saying 'wait and see if it starts working before adding to it', not 'I am giving up on it'.

Yes, probably is a little unfair tbh but has got us thinking about the subject and that original comment does highlight the way people think. We are all guilty of it to some extent because we are not machines but some are more prone than others and therefore some of us are more suited to this type of investing than others and it really is worth finding out the easy way rather than the hard way. Apparently quite a lot of investors think they would be better at active investing rather than passive, but would be wrong.

[bluedonkey]

For me, Dod's comment "know thyself" is spot on. I would go further and say it is fundamental to successful investing. Know your deepest response to the twin drivers of fear and greed, and you will be able to make sounder investment decisions which of course, often are "do nothing". It is difficult to do nothing if you are too fearful or too greedy. I do not use those terms pejoratively but as an indication of the emotional forces at work in all of us.

[Dod101]

Apparently quite a lot of investors think they would be better at active investing rather than passive, but would be wrong.

If that means what it says, how can you make that statement as though it is a statement of fact?

Dod

[Markblox]

Apparently quite a lot of investors think they would be better at active investing rather than passive, but would be wrong.

If that means what it says, how can you make that statement as though it is a statement of fact?

Dod

What I mean is that we generally over estimate our abilities at stock picking. More of us think we can beat the market than actually can. Just like on average we think we are better than average drivers, but that can't be can it?

[Wizard]

I was reading the recent post about RDSB and it went a bit off topic as it often does so have posted here. I post rarely but read most of it. The comment in question was a suggestion that as prices have gone down, perhaps now was a time to invest more. the answer is below:

To be honest Ian at this stage I am not prepared to commit any more capital to an approach that so far has failed to deliver. When (if ) capital values start to recover I may reconsider.
Terry.

I think I read that the HYP approach has been tried for a year, if that's right then it would seem that instant gratification is expected. Not trying to have a pop at anyone but I do believe that a lot of people are not suited to individual share investments as only time in the markets are the way of ensuring gains.
Reminds me of something that stuck in my memory from over 25 years ago after reading The intelligent investor. That is "Most shares are bought because they have gone up in value and most are sold because they have gone down in value" To be successful you should do the opposite it goes on to say. Worth remembering that the losses you and I have suffered in the last year are not losses at all but just different valuations. The first third of that great book is all about psychology and worth reading as it will help you understand what type of mindset you have and your suitability to invest in different ways. If you can't see lower prices as an opportunity then perhaps it isn't for you. Reading the book could save a lot of investors a lot of money.

Moderator Message:
edited to correct quote. Moved to "other HY board" as post is not practical question more a strategy of the mind. Raptor.

So what would you do, continue to pile in to the shares that are well below both the original entry point and the subsequent top up? How far down should I chase them before I stop? In part maybe it is about me recognising that at the moment I am not able to deterkine what is the next Carillion or Provident Financial. So should I put more in to Greene King that has so far cost me 30% of my original investment? HYP wisdom would presumably say yes, because the dividend has yet to be cut. What is your view?

Not rhetorical questions, I would be interested in and grateful for your thoughts.

And as TUK020 said, I am not jumping ship just not putting more new money in. Instead I will be looking to put money in to ITs, something which many HYP stallwarts own along side their individual shares.

Terry.

[idpickering]

So what would you do, continue to pile in to the shares that are well below both the original entry point and the subsequent top up? How far down should I chase them before I stop? In part maybe it is about me recognising that at the moment I am not able to deterkine what is the next Carillion or Provident Financial. So should I put more in to Greene King that has so far cost me 30% of my original investment? HYP wisdom would presumably say yes, because the dividend has yet to be cut. What is your view?

Not rhetorical questions, I would be interested in and grateful for your thoughts.

And as TUK020 said, I am not jumping ship just not putting more new money in. Instead I will be looking to put money in to ITs, something which many HYP stallwarts own along side their individual shares.

Terry.

You raise an interesting point Terry. No-one wants to continue grasping (investing in) a falling knife. As I mentioned regarding Shell, I topped up my holdings during the downward trend, but only once. I do keep an eye on how much capital I've bet on any given share, so as to remind me to hold off investing any more money there if it's getting excessive. Royal Mail is a good example. I bought over three separate months from 22 Oct 2015 to 24 Oct 2016. Thereafter the share continued dropping, and I topped up once on 22 Jun 2017. That was to 'grab a bargain', and lower my average purchase price, which is now 460p. Although I'd under water still with them, I won't top up further as I've bet enough already. Going forward, it's a matter of letting the share do what it will, and take the divis.

Ian.

[GoSeigen]

Apparently quite a lot of investors think they would be better at active investing rather than passive, but would be wrong.

If that means what it says, how can you make that statement as though it is a statement of fact?

Dod

What I mean is that we generally over estimate our abilities at stock picking. More of us think we can beat the market than actually can. Just like on average we think we are better than average drivers, but that can't be can it?

I submit that there's a groupthink that we underestimate our abilities at stock picking. I believe most investors outperform the hypothetical market in which everyone bought stocks at random.

Stock returns are not a magic manna from heaven which we are entitled to gather up with a widely spread tracker net. Rather, returns are the result of capital deployed with thought and care by investors into the most promising enterprises. When investors forget that they set themselves up for the sort of disaster seen in 2007 onwards. I was ridiculed for expressing a similar view in 2007 (urging HYP investors to be cautious about valuations and risk), and perhaps will be now, too!

I agree with Dod that stock picking is not a matter of following a religious "high yield always wins" strategy, but by using one's skills and taking a professional (i.e. NOT ignorant!) approach to investment. Yes there will be losers relative to such a market but everyone in aggregate wins. This was an early theme of the original Motley Fool, gradually misunderstood and forgotten over the years.

Watched "A Beautiful Mind" with the kids last night, superb film and newly resonant given today's politics; Nash's game theory and its upending of Adam Smith's "selfish ambition brings the greatest benefit" doctrine is relevant: we can't all get the blonde!

GS

[bluedonkey]

GoSeigen,

In terms of actions, what are you advocating? Going 100% cash now?