M & M's First Portfolio - Strategy Ideas?

[Dod101]

[

Let him and others do the account studying line by line,

You've lost me on this one, mate. He's not going come over and do my reading, and I'm not copying his portfolio (or anyone's without just buying their fund). Please elaborate.

unless of course you think you will be another Warren Buffet.

No! But to be brutally frank, whilst it's clear he's a shrewd/clever/whatever, he started out in the 50s, and has experienced many booms and busts. But in particular, he was around in the golden post WWII American "you've never had it so good" times and it still alive today! And compos mentis!

From the first quote what I meant was simply WB appears to love company accounts. I do not especially but understand enough to get by which is all I think the average reasonably competent investor needs. I think there are many other things to understand. As I said, try to read the market and where it is going. That gives you a context for picking shares. As to the shares themselves, it depends what your aim is. Things like debt ratios, free cash flow and the like are things that any good Finance Director will be watching constantly and if you pick the right company you don't have to do this yourself. I doubt that spending hours studying accounts will make any of us better investors.

So picking up on Mel's recommendation for a book, I concentrate on the 'softer' issues like culture, long termism, a conservative outlook, low debt. I like a family shareholding because that usually is a good indicator of these qualities.. If you find the right management you do not all the research yourself. In any case, most of the companies we are investing in are very well researched so why do it all again?

As for WB, yes he was around in the immediate postwar era but what he has said over the years remains as true today as it was then. I am pretty sure that if he were starting out today he would probably do just as well. And of course you have just said that his experience counts.

You must do what you feel best but I just think that you should get some experience, however dearly bought and that will teach you more than studying company accounts in great detail.

I could go on but that will do,

Dod

[hiriskpaul]

Buffet's current advice to just about everyone, including many institutional investors, is to buy a tracker fund! Ben Graham adopted a similar stance late in his life as well.

I would say if you want to invest in individual shares you are going about it the right way. Stick to small caps as they have simpler accounts, are less well researched and offer better potential rewards for your effort. Expect to pick at least 2 losers for every winner though.



Edit: by losers I mean shares that underperform the market, not necessarily ones that lose you money, although that may happen as well of course.

Good luck.

[melonfool]

Buffet's current advice to just about everyone, including many institutional investors, is to buy a tracker fund! Ben Graham adopted a similar stance late in his life as well.

I would say if you want to invest in individual shares you are going about it the right way. Stick to small caps as they have simpler accounts, are less well researched and offer better potential rewards for your effort. Expect to pick at least 2 losers for every winner though.

When I worked out that small caps are likely to give decent returns, I bought a small cap fund....well, ETF. It's done quite well, wish I'd bought more. No spare money currently post house move 11 months ago.

Mel

[TheMotorcycleBoy]

So I'm now looking at the "look inside" bit of the book on amazon firstly for:

https://www.amazon.co.uk/Warren-Buffett ... 0061727636

Me and Mel do observe it got mixed reviews....After looking at "like a girl". I'm gonna look at this one:

https://www.amazon.co.uk/Essays-Warren- ... 1118821157

oh, and this one, perhaps

https://www.amazon.co.uk/Gems-Warren-Bu ... 0980005647

But to be quite frank, it all does rather smack of hero worship. The dude's definitely a good investor, but reading any of these won't necessarily, make me any better. We are all trapped by own nature, I feel, and for cripes sake, the guy is not an "oracle", or "god" etc. etc. like some may say. We have this, as one of his mistakes:

https://www.theguardian.com/business/20 ... t-him-444m

Billionaire investor Warren Buffett has admitted that “thumb-sucking” over selling his Tesco stake cost $444m (£287.6m), one of the biggest losses in his investment company’s history.

Buffett’s firm Berkshire Hathaway was still Tesco’s third-largest shareholder last autumn, even after Britain’s biggest grocer had issued four profit warnings and become embroiled in an accounting scandal. Buffett admitted in October he had made a “huge mistake” by investing in Tesco.

In his 50th annual letter to shareholders, the 84-year-old veteran investor, known as the Sage of Omaha and one of the world’s richest people, said: “An attentive investor, I’m embarrassed to report, would have sold Tesco shares earlier. I made a big mistake with this investment by dawdling.”

The investment is a blemish on the 84-year-old billionaire’s record. In his 50 years at the helm of Berkshire, he transformed a failing textile company into a sprawling business that has outperformed much of corporate America.

Since Buffett bought Berkshire in 1965, the firm’s per-share value has rocketed from $19 to $146,186.

He bought his first Tesco shares in 2006. In 2012, he raised his Tesco stake to over 5% despite a shock profit warning. He sold 114m of his 415m Tesco shares in 2013 when he “soured somewhat on the company’s then-management”. The grocer was then run by Philip Clarke.

I deliberately emboldened two sentences since, however you spin it, it runs completely counter to chapter 6. of WarrenBuffett Invests Like a Girl, which is is "Shun risk". I don't think so...

I'm less and less convinced that I really want to read his "letters to his shareholders"!

[TheMotorcycleBoy]

or trying to impress the local girls!

Matt

Try this: https://www.amazon.co.uk/Warren-Buffett ... ike+a+girl



Mel

Back on this post.....yes the X and Y chromosome, testosterone references in Chapter 1. are quite amusing/interesting. It's quite funny that out of me and Mel, Mel is probably a tiny bit more cautious, and is definitely much more patient and relaxed than me. She is generally much more casual in executing a trade and is happy to wait around throughout the day before buying, where as, I'll maybe wait around for a few minutes, then I'll think "Balls, I have actually decided to buy this, at about this price, so what difference will a few pence per share actually make?", then I'll press deal.

Whether either of the above behaviours (re. buying) is actually more profitable, I do very much doubt....surely it's down to probability?

Actually, I think the most relevant difference between me and Mel, is not so much X vs Y chromosome, but because I'm an absolute classic type A personality, where as Mel is so laid back type B, she's virtually horizontal.

https://en.wikipedia.org/wiki/Type_A_an ... ity_theory

I'm sorry, but to be honest, I think I'll buy this one instead.

https://www.amazon.co.uk/Essays-Warren- ... 118821157/

and after this, no more investment books!

Matt

[SalvorHardin]

Billionaire investor Warren Buffett has admitted that “thumb-sucking” over selling his Tesco stake cost $444m (£287.6m), one of the biggest losses in his investment company’s history.

Buffett’s firm Berkshire Hathaway was still Tesco’s third-largest shareholder last autumn, even after Britain’s biggest grocer had issued four profit warnings and become embroiled in an accounting scandal. Buffett admitted in October he had made a “huge mistake” by investing in Tesco.

In his 50th annual letter to shareholders, the 84-year-old veteran investor, known as the Sage of Omaha and one of the world’s richest people, said: “An attentive investor, I’m embarrassed to report, would have sold Tesco shares earlier. I made a big mistake with this investment by dawdling.”

The investment is a blemish on the 84-year-old billionaire’s record. In his 50 years at the helm of Berkshire, he transformed a failing textile company into a sprawling business that has outperformed much of corporate America.

Since Buffett bought Berkshire in 1965, the firm’s per-share value has rocketed from $19 to $146,186.

He bought his first Tesco shares in 2006. In 2012, he raised his Tesco stake to over 5% despite a shock profit warning. He sold 114m of his 415m Tesco shares in 2013 when he “soured somewhat on the company’s then-management”. The grocer was then run by Philip Clarke.

I deliberately emboldened two sentences since, however you spin it, it runs completely counter to chapter 6. of WarrenBuffett Invests Like a Girl, which is is "Shun risk". I don't think so...

I'm less and less convinced that I really want to read his "letters to his shareholders"!

There have been a lot of mistakes at Berkshire Hathaway, perhaps the biggest being buying Berkshire Hathaway in the first place

Buffett isn't infallible, the difference between him and almost everyone else is that he draws attention to his mistakes. The article seems to indicate that Tesco was a rarity and a big loss. Not so. For example, losing $1.5 billion on ConocoPhillips or $3.5 billion in today's money on Dexter Shoe makes the Tesco losses seem tiny (and as for the costs incurred by buying General Re....).

Here's a pretty good list of a few his mistakes.
https://www.investopedia.com/financial- ... takes.aspx

The thing is that Buffett's style really can be boiled down into a few points. Strong moats, patience, don't overpay (buy a dollar for fifty cents), value the business and get a share valuation from that (not the other way around), read a lot, don't buy a share if you wouldn't be happy owning it for a decade. Be fearful when everyone is greedy and be greedy when everyone is fearful. The ideal holding period is forever, few companies are however that good that you can do this.

Many people can't follow these ideas, if only because they want to be more active and be in more exciting investments. That's fine, there's more than one way to skin an investment cat. It's just that from what I've seen over the 37 years that I've been investing it's a better strategy than the others. However, most of can't follow him by buying an insurance company and investing its float (that's a big factor behind Buffett's success).

Bear in mind that the Buffett of the last forty years is very different from the 1950s to 1970s Buffett who was more like a hedge fund manager with a much shorter time horizon (and less concerned about moats).

Now putting these into practice is difficult, particularly since the financial media is geared around getting people to over-trade and get over-excited on the upside and downside. The media loves to assign a reason for every market movement when most of them are really just random "noise". I've been a Berkshire shareholder for over 25 years and I still have the odd flight of fancy. But my five largest holdings have been held for approximately 15 years on average.

Then there's The Superinvestors of Graham and Doddsville, Buffett's 1984 lecture where he demonstrates the outperformance of investors using Benjamin Graham's strategy. Buffett in the past has said that he is 85% Benjamin Graham and 15% Phil Fisher; I'd argue that today he is 50% Graham and 50% Fisher (with much of the 50% coming from Charlie Munger)

https://en.m.wikipedia.org/wiki/The_Sup ... Doddsville

[SalvorHardin]

Just realised that I left out one of the more important parts of Buffett's strategy. Stick to investing within your "Circle of Competence", those sectors which you understand. Importantly avoid those sectors where you have no particular knowledge, or first of all expand your knowledge of that sector before you start heavily buying. Buffett in the 1996 annual report said:

"What an investor needs is the ability to correctly evaluate selected businesses. Note that word "selected": You don't have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital."

https://www.businessinsider.com/the-cir ... 13-12?IR=T

A variation is Peter Lynch's "Invest in what you know". Investors can spot opportunities in businesses where they are customers, sometimes well before the investment professionals become aware, because of their familiarity with their products. Some of Lynch's best ideas came from his wife and daughters' pointing out the benefits of certain products which they bought.

For those who can't get along with Buffett's philosophy I'd strongly recommend trying Lynch (many of us take ideas from both!).

https://en.wikipedia.org/wiki/Peter_Lynch

Warning: invest in what you know doesn't mean that if you understand the products that you automatically understand the business. A lot of people piled into technology shares during the dotcom boom of the late 1990s on the grounds that they understood the technology. But many of them didn't understand the business and consequently bought massively overpriced shares.

Always remember, "Price is what you pay. Value is what you get"

[Dod101]

I agree that Peter Lynch is another excellent read. in fact I read him before Buffett. But although neither are gods and they made mistakes (who doesn't?) the important thing is they got much more right than wrong. If he were in the UK I doubt that Buffett would have bought into Tesco for instance. It seemed like a simple business no doubt, and probably is but it has no real moat and had a poor culture. What was he thinking about? It was simply outside of his circle of competence.

Dod

[TheMotorcycleBoy]

In the end I bought this:

https://www.amazon.co.uk/Essays-Warren- ... 118821157/

Certainly regards the layout of the book, and the actual density of the material that I've thumbed through it looks to be a good read. I've just read 20 or so pages last night, and he is starting off strongly on the owner/investor mindset, and about always focusing on value.

So far I'm impressed but how I map this to post-QE over priced UK markets, will be tricky, as I guess many of you are also finding.

The thing is that Buffett's style really can be boiled down into a few points. Strong moats, patience, don't overpay (buy a dollar for fifty cents), value the business and get a share valuation from that (not the other way around), read a lot, don't buy a share if you wouldn't be happy owning it for a decade. Be fearful when everyone is greedy and be greedy when everyone is fearful. The ideal holding period is forever, few companies are however that good that you can do this.

Yes, agree.

Many people can't follow these ideas, if only because they want to be more active and be in more exciting investments. That's fine, there's more than one way to skin an investment cat. It's just that from what I've seen over the 37 years that I've been investing it's a better strategy than the others.

Yes, boring and profitable works for me!

However, most of can't follow him by buying an insurance company and investing its float (that's a big factor behind Buffett's success).

Yes, this has been touched on already in the above book.

Bear in mind that the Buffett of the last forty years is very different from the 1950s to 1970s Buffett who was more like a hedge fund manager with a much shorter time horizon (and less concerned about moats).

Yes, I'm sure he's evolved and learnt over the decades.

I agree that Peter Lynch is another excellent read. in fact I read him before Buffett. But although neither are gods and they made mistakes (who doesn't?) the important thing is they got much more right than wrong. If he were in the UK I doubt that Buffett would have bought into Tesco for instance. It seemed like a simple business no doubt, and probably is but it has no real moat and had a poor culture. What was he thinking about? It was simply outside of his circle of competence.

Thanks, yes I did see his "beating wall street" book. Not bought it yet, and like I hinted earlier I hoping WBs book is my last one for a little, I'm certainly building a collection!

Sorry about short replies - the day job is insane.

Matt

[TheMotorcycleBoy]

While waiting for a test to run I re-read this thread, and happened upon a comment from Mel:

Hmm, if your criteria have ruled out Tate and GSK you might want to think again.

I don't know what the others in that sentence are though - it is the convention to write the full name as well as the ticker, or even just the full name, but not just the ticker.

Mel (the other Mel)

Well, to be honest, we did end up buying Tate&Lyle TATE at some stage in the middle of the year - a while after this post. If I recall correctly we looked back over the books, and at their dividend yield (and market price) at the time, read a few articles etc. and then purchased. In terms of capital growth, it was/is (when I last looked the other week) probably our currently highest gaining stock! While others have fallen (by and large) TATE has risen - presumably it's business model is more "Brexit" + "Trump" proof than a lot of others.....who knows?


And generally....

The last few months have been quite interesting for us, seeing the market inflate around the late summer, and now fall somewhat. We have taken the opportunity to buy a few more stocks very recently now that the prices have fallen.

I still defend our policy of selling the odd thing if the price rises markedly. Yes we are "in it for the long term", yes we'd like to just sit back and let things grow and pay out income, etc. but if a volatile stock rises big time, we've already seen that you can often rebuy after making a profit when the prices falls back to earth. Indeed the Focusrite (TUNE) shares we flogged like 6 months ago, we rebought once they were down. Likewise we did a topslice thing on our Burford Capital (BUR) a few months back when it was at 2000 (they are now at 1300-1400).

At the moment, as some of you may be aware, we are more focussed on attempting to buy at the "best price", and figuring out value. This is certainly quite a revealing exercise - and is making us a little critical of earlier purchases, not of the firms picked in particular, but more about us being a little bit rash, regarding the current pricing of the stock. But anyway, we can only learn by our experiences, and so far do not regret any of these past actions, and will not "sell them just because we made a mistake".

Anyway, that's my update on how we've been investment-wise,

Matt (and Mel!)

[simoan]

I still defend our policy of selling the odd thing if the price rises markedly. Yes we are "in it for the long term", yes we'd like to just sit back and let things grow and pay out income, etc. but if a volatile stock rises big time, we've already seen that you can often rebuy after making a profit when the prices falls back to earth.

Over time you'll realise that this policy does not work. You may as well bet on coin tosses. For every share you sell high and buy back lower there will be one that you never buy back because it just keeps going up. And then when it 10 bags you will feel a proper idiot, believe me! There will also be times you buy back a share and it just keeps going down, of course.

At the moment, as some of you may be aware, we are more focussed on attempting to buy at the "best price", and figuring out value. This is certainly quite a revealing exercise - and is making us a little critical of earlier purchases, not of the firms picked in particular, but more about us being a little bit rash, regarding the current pricing of the stock. But anyway, we can only learn by our experiences, and so far do not regret any of these past actions, and will not "sell them just because we made a mistake".

Matt (and Mel!)

This is absolutely when you MUST buy or sell - If you know you made a mistake either get out or buy back!! Obviously it is still early days and you are trying to develop your own investment process. Without a process you may get lucky and do well, but in reality you will likely underperform a cheap FTSE tracker in common with a lot of private investors. Investing is just like everything else in life - Fail to Prepare, Prepare to Fail.

All the best, Si

[TheMotorcycleBoy]

Fail to Prepare, Prepare to Fail.

Ok, thanks for that!

[TheMotorcycleBoy]

This is absolutely when you MUST buy or sell - If you know you made a mistake either get out or buy back!!

I think you may have misread my post, I said:

little critical of earlier purchases, not of the firms picked in particular, but more about us being a little bit rash, regarding the current pricing of the stock

i.e. we don't think the firms picked were mistakes, but rather the prices paid. Why on earth should I sell based on temporary lowering of the market price? That's just silly.........if I wanted to sell, I'd wait until the price rose sufficiently.

[simoan]

i.e. we don't think the firms picked were mistakes, but rather the prices paid.

Well, perhaps you should have been clearer then and not used the word "mistake"! It's only a "mistake" if you buy or sell something and then later learn of something that changes the investment thesis. I thought this is what you meant. Deciding you have made a "mistake" just because the price goes down is of course ludicrous, and that is not what I was suggesting. The problem is your use of the word mistake.

Si

[OLTB]

Hi Matt

I was listening to the radio this morning and a chap called Tim Steer was on promoting his book called, 'The SIgns Were There'. There's a link here https://www.amazon.co.uk/Signs-Were-The ... 1788160800 . Tim Steer was previously UK equity fund manager at Artemis and prior to that a chartered accountant at Ernst & Young.

The book covers a range of companies that have failed in the past (including the recent collapse of Carillion - a company that many HYPers (but not all) were invested in (me included ). I don't know how deeply the book goes into company accounts, but that's certainly what the gist of the discussion was about and seems to be his bread and butter given his past.

I might get this book as if there's a nugget or two that helps prevent a disaster then all the better. If you wanted to listen to the interview it was on Radio 4 from 6.15 ish (the business news bit).

Cheers, OLTB.

[TUK020]

Well, to be honest, we did end up buying Tate&Lyle TATE at some stage in the middle of the year - a while after this post. If I recall correctly we looked back over the books, and at their dividend yield (and market price) at the time, read a few articles etc. and then purchased. In terms of capital growth, it was/is (when I last looked the other week) probably our currently highest gaining stock! While others have fallen (by and large) TATE has risen - presumably it's business model is more "Brexit" + "Trump" proof than a lot of others.....who knows?

TATE Brexit proof?
Hmmmm, interesting.
I suppose it takes a lot of sugar to make industrial amounts of fudge......

[TheMotorcycleBoy]

Well, to be honest, we did end up buying Tate&Lyle TATE at some stage in the middle of the year - a while after this post. If I recall correctly we looked back over the books, and at their dividend yield (and market price) at the time, read a few articles etc. and then purchased. In terms of capital growth, it was/is (when I last looked the other week) probably our currently highest gaining stock! While others have fallen (by and large) TATE has risen - presumably it's business model is more "Brexit" + "Trump" proof than a lot of others.....who knows?

TATE Brexit proof?
Hmmmm, interesting.
I suppose it takes a lot of sugar to make industrial amounts of fudge......

I know - I can't believe it, we bought TATE because they looked like a moat style firm that would add a bit of diversity, reasonably cheap at the time, with the DY at 4.5%. We kind of expected it to be a bit of plodder so to speak, not that we are looking for stratospheric trendy-growth firms, in any case, but they were up about 10% when I last looked.

I was just surprised, you know, what with how lots of stocks have tanked of late.

[PinkDalek]

TATE Brexit proof?
Hmmmm, interesting.
I suppose it takes a lot of sugar to make industrial amounts of fudge......

Psst - Tate no longer refines sugar and no longer holds the rights to the Tate & Lyle brand (or something along those lines), despite their corporate website being https://www.tateandlyle.com

[TheMotorcycleBoy]

TATE Brexit proof?
Hmmmm, interesting.
I suppose it takes a lot of sugar to make industrial amounts of fudge......

Psst - Tate no longer refines sugar and no longer holds the rights to the Tate & Lyle brand (or something along those lines), despite their corporate website being https://www.tateandlyle.com

Yikes! I had heard that they had "diversified" into non-sugar based sweeteners, but I didn't know that they won't wholly responsible for those sugary and sweet crystals.

I still can't fathom out why they are about 11.5% up from August given things as they are.

Matt

[simoan]

Yikes! I had heard that they had "diversified" into non-sugar based sweeteners, but I didn't know that they won't wholly responsible for those sugary and sweet crystals.

Matt

So you've invested in a company without knowing what it does. Did you not read the Annual Report? Did you not read through the last couple of years of results announcements and trading updates to see the breakdown in revenues across different sectors and product lines and to get a feel for how honest and reliable the management are in their statements? If you didn't, then you've not really done enough research and IMO you need to do more before you decide to buy anything.

Just saying. I wish I'd had some "tough love" when I started out investing.
Si