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M & M's First Portfolio - Strategy Ideas?

Stocks and Shares ISA , Choosing funds for ISA's, risk factors for funds etc
Investment strategy discussions not dealt with elsewhere.
Dod101
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Re: M & M's First Portfolio - Strategy Ideas?

#144413

Postby Dod101 » June 8th, 2018, 7:36 am

Muddywaters wrote:
LooseCannon101 wrote:I am a great believer in investment diversity - both company and country for an equity portfolio. A boring strategy e.g. monthly buying and holding a world equity fund and re-investing dividends has worked for me over the past 20 years


I wouldn't buy individual company shares as it is usually more trouble than it is worth.



Couldn’t agree more. For most people this is the correct course of action. All workdtracker and keep pumping money in.


I doubt very much that there is a 'correct' course of action. For most people it may work out best in the long run, I do not know, but for instance for myself it certainly would not be the 'correct' course of action. Investing does not have a 'correct' anything until not until well after the event.

Dod

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Re: M & M's First Portfolio - Strategy Ideas?

#144472

Postby simoan » June 8th, 2018, 12:27 pm

Melanie wrote:To all recent posts. We read the book (The Art of Execution) because it was recommended by several here.

And yes, one of our objectives here was to raise one of two points mentioned in it and see what people thought, and gauge whether or not anything the book had said was vaguely relevant/useful.

However, we are also reasonably sane, rational, free-willed, often times cynical folk too. We never did think that reading a quick book lead to a big suitcase stuffed full of gold!

We will keep doing what are doing, reading, listening and soaking up all we hear/see and then apply our own judgement/views onto that information.

M&M

I'm not really sure how useful this thread has been for you to be honest? I don't think you're asking the right question at the start because everyone will be at a different point in life and have a different investment perspective, timescale etc. They will all be talking their own book, and frankly, there is no wrong or right answer about what to do if the market crashes, so I didn't really see any point in answering. You just have to do what is right for you at that time. You will likely not make the right decision, but the point made in the Art of Execution is that you have to make a decision. The end result may be that you decide to do nothing and hold on, or you just sell the positions for which you have a lower conviction, have the weakest balance sheets etc. The decision is yours but make sure you make one as opposed to being a Rabbit. Only you can know your financial position, risk tolerance and how much a significant loss of your capital will affect you psychologically. Unfortunately, the very best way to learn is to live through it, not to discuss it.

Many contributors have highlighted shares that have provided wonderful long-term returns but they've not told you about the number of clunkers they bought along the way that have cost them money and reduced their overall portfolio returns. Maybe their overall return would've been much better if they'd dumped the clunkers earlier instead of holding on for grim death? Some people will even selectively quote Warren Buffett and/or Charlie Munger. Buffett also said there are only two rules of investing: "Rule1: Never Lose Money! Rule2: Don't forget Rule1". So this idea that Warren Buffett just buys companies and never sells is false. He bought a whole load of Tesco, lost money and then dumped the lot and didn't look back. The original Berkshire Hathaway company he bought was a total crock that lost him a lot of money and it now bears the name of his investment holding company to remind him every day of his screw up!

As a result of your thread I went to look at my earliest purchases and there are real clunkers (Lloyds TSB at 551p, Kingfisher at 460p) and two big winners (Whitbread at 500p and BHP Billiton at 230p). So a pretty mixed bag and I still hold every single BHP Billiton share I originally bought. Does it make me clever because I sold Lloyds at 500p in 2005? No, because I also sold Whitbread at 650p! And I had no real idea why I sold either - I did not have a strategy or plan so it was just blind luck.

I think the title of Lee Freeman-Shor's book is unfortunate because "The Art Of Execution" makes it sound like it's about trading, but it is not. The real point and biggest take-away is that you only have to get a few decisions right to make a lot of money over time and that there is more than one way of achieving it as long as you avoid certain losing behaviours. One big winner will compensate for half a dozen lousy decisions. I think anyone that has spent time investing in shares knows that this is undoubtedly true. I wish the book was available when I first started out in 2000.

BTW If you ever need some kindling I'd use that Robbie Burns book - that IS about trading.

All the best, Si

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Re: M & M's First Portfolio - Strategy Ideas?

#144485

Postby simoan » June 8th, 2018, 12:50 pm

Muddywaters wrote:
LooseCannon101 wrote:I am a great believer in investment diversity - both company and country for an equity portfolio. A boring strategy e.g. monthly buying and holding a world equity fund and re-investing dividends has worked for me over the past 20 years


I wouldn't buy individual company shares as it is usually more trouble than it is worth.



Couldn’t agree more. For most people this is the correct course of action. All workdtracker and keep pumping money in.

I'm sorry, but this thread was started by Matt & Mel and is quite specifically about investing in individual company shares and what strategies they could use and what action to take should the market crash. So how on earth we've ended up with a discussion about World Equity Funds I have no idea! As Tiger Woods would say, let's keep the conversation on the fairway and out of the rough.

All I would say to Matt & Mel is that you've made a great start and bought some good companies using sound investment criteria. Maybe if life changes (perhaps a little M&M comes along) :-) and you have less time to spend on your investing it may be worth putting some money into index tracking ETFs. However, if you have the time to research and buy individual shares and collect and re-invest dividends along the way, you will blow the returns from trackers out of the water.

All the best, Si

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Re: M & M's First Portfolio - Strategy Ideas?

#144487

Postby TheMotorcycleBoy » June 8th, 2018, 12:56 pm

Thanks for your post, Si,

To be honest, in answer to
simoan wrote:I'm not really sure how useful this thread has been for you to be honest?

I have to differ with you and state that mostly in it's early stages, this thread has been very useful. Mel and I considered there to lots of interest and value in these posts in particular:

viewtopic.php?p=144074#p144074
viewtopic.php?p=144075#p144075
viewtopic.php?p=144080#p144080

(sorry for any omissions - I didn't do an exhaustive reappraisal).

simoan]because everyone will be at a different point in life and have a different investment perspective, timescale etc. They will all be talking their own book, and frankly, there is no wrong or right answer about what to do if the market crashes[/quote]
Indeed. And that makes the discussion all the most interesting, and as such, useful too.

The thread only really started to lose value, when it seemed as if, we were being advised not to live life by following instructions read out of a manual. To be honest, we had already realised that!

[quote="simoan wrote:
Unfortunately, the very best way to learn is to live through it, not to discuss it.

Hmm...in other ventures of mine. I have made immense gains by discussing actions first with those with more experience.....for example I mend our cars, power tools, and lots of our domestic plumbing myself. I'm certainly very pleased I discussed those fields with more experienced folk online or in person before diving in! As they say experience is an expensive teacher....

Matt

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Re: M & M's First Portfolio - Strategy Ideas?

#144488

Postby TheMotorcycleBoy » June 8th, 2018, 12:57 pm

simoan wrote:Maybe if life changes (perhaps a little M&M comes along) :-)

16 and 13 years ago!!!
:lol:

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Re: M & M's First Portfolio - Strategy Ideas?

#144520

Postby simoan » June 8th, 2018, 2:23 pm

Melanie wrote:Thanks for your post, Si,

To be honest, in answer to
simoan wrote:I'm not really sure how useful this thread has been for you to be honest?

I have to differ with you and state that mostly in it's early stages, this thread has been very useful.

There's no need to differ - I was asking a question not making a statement!:-) I'm glad to hear the posts here have been of use. I find that posts without enough context or background information are not that useful and if you ask many people the same question you will get many different answers without any kind of consensus.

simoan wrote:Unfortunately, the very best way to learn is to live through it, not to discuss it.

Melanie wrote:Hmm...in other ventures of mine. I have made immense gains by discussing actions first with those with more experience.....for example I mend our cars, power tools, and lots of our domestic plumbing myself. I'm certainly very pleased I discussed those fields with more experienced folk online or in person before diving in! As they say experience is an expensive teacher....

Matt

Well, investing isn't like any of those things; there is no correct prescribed method or way of doing it that is guaranteed to work and the final outcome is unknown because it is dependent on many events you cannot control. Unless of course your plumbing is that bad :-) It's a process you only get better at by practising, unfortunately. Cue that old Gary Player saying about the more he practices, the luckier he gets...

All the best, Si

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Re: M & M's First Portfolio - Strategy Ideas?

#151888

Postby cshfool » July 12th, 2018, 8:32 am

Hi,
thanks for sharing , did you have a go at estimating a cash yield , EPV or bond yield valuation on any of these? Id be interested to see the working if so.

thanks csh

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Re: M & M's First Portfolio - Strategy Ideas?

#151955

Postby hiriskpaul » July 12th, 2018, 12:19 pm

I sell (or partially sell) investments for one of 4 main reasons:

1) My current assessment of the likely future returns and risk lead me to conclude that the investment is overpriced. Note that risk and return both play a part here. I have sold investments that are low risk, but the potential returns are not sufficient to justify the risk. Similarly I have sold investments that have very high potential returns, but again not sufficient for the risks involved.

2) I am in an investment that I like and otherwise have no good reason to sell, but find that this overexposes me to particular risks and I sell what otherwise is a perfectly sound investment (from a risk/reward perspective) to reduce those risks.

3) I see a good investment opportunity and need to sell something so I can invest in the opportunity.

4) To raise cash to spend.

I would never sell an investment just because the price has dropped, gone up, I have made a profit or loss. A more minor reason to sell might be for a tax advantage. As an example, even if my assessment says an investment is just about worth hanging on to, if I can crystallise a capital loss on it, which I can use to offset a capital gain elsewhere, I might sell.

On the other hand, for my global passive (mostly passive) equity portfolio, I do my very best to ignore any thoughts I may have about risk/return. I found this hard at first, but have become better at it over time. I stick doggedly to plan, keeping asset allocations roughly in line with that plan. So I might still sell something to rebalance, which comes under 2 above, but otherwise completely ignore risk. So far I have not actually had to sell as the portfolio has remained balanced through directing dividends and new investment into the underweight assets, although I have sold some actively managed ITs and bought passives instead*. This ignore risk approach has worked well over the past few years. If I exercised judgement based on risk/return I would have reduced my allocation to US equities years ago which would have reduced portfolio return.

* Edit: I have also bought some ITs where I cannot get the allocation to small caps I want through passives.

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Re: M & M's First Portfolio - Strategy Ideas?

#152034

Postby TheMotorcycleBoy » July 12th, 2018, 7:02 pm

hiriskpaul wrote:I sell (or partially sell) investments for one of 4 main reasons:

1) My current assessment of the likely future returns and risk lead me to conclude that the investment is overpriced. Note that risk and return both play a part here. I have sold investments that are low risk, but the potential returns are not sufficient to justify the risk. Similarly I have sold investments that have very high potential returns, but again not sufficient for the risks involved.

2) I am in an investment that I like and otherwise have no good reason to sell, but find that this overexposes me to particular risks and I sell what otherwise is a perfectly sound investment (from a risk/reward perspective) to reduce those risks.

3) I see a good investment opportunity and need to sell something so I can invest in the opportunity.

4) To raise cash to spend.


hiriskpaul wrote:I do my very best to ignore any thoughts I may have about risk/return. I found this hard at first, but have become better at it over time. I stick doggedly to plan, keeping asset allocations roughly in line with that plan.

All sounds reasonable.

As you people know, Mel and I have only been investing since March. We've have actually sold 3 times already:

  • We sold TUNE because it had risen about 20% in 7 weeks since ownership. I'm no expert, but that sort of thing, can't go on forever, so we thought we'd make a quick profit
  • Likewise we sold COMPUTACENTER since it rose by the same amounts in about 2-3 months. We'd also reviewed them further and didn't like their low margins
  • We sold ULVR as soon as we heard that they could leave the FTSE, and we'd discovered they were more indebted than we thought. We made a small profit there, a small div. and about 5% over 3 months. I don't regret doing it - I don't know what will happen if/when they exit, and we've only made a small amount on them thus far, so it seemed silly to keep them

With our naivety, and lack of experience in all this, I guess we've not yet, settled down into a particular style. Our main rationale is to use our savings more profitably, and with more control and flexibility than we'd get by lobbing it all in pension top-ups. I see 2 main attitudes that we take to current activities:

Firstly: Dividends and bonds coupons are obviously nice since as long as the firm doesn't go tits up, it affords smallish lumps of money just appearing.
Secondly: Buying something cheap which we think has a good chance of improvement, with a view to sell soon for profit, or watch grow.

We do also see some value to the philosophy (seemingly the mantra of Warren Buffet) of finding something you think is a wonderful investment, and buying and keeping forever. Whilst that sounds great and has obviously worked well for him; Mel and I are very aware of the fact that we've entered the market at quite a highly valued position, and are aware of the various market, and so the idea of getting a stock whose price will just rise and rise ad infinitum seems a bit fanciful.

But anyway, we are very new to this, and obviously have a lot to learn!

By way of an update, since we originally posted this thread, we've sold CCC and ULVR as above and have acquired:

  • DTY (yes!) they seemed cheap with some prospect of gain, and they pay a div. still
  • PSN they weren't overly pricely, with negligible debt, decent margin IIRC, and pay a big dividend
  • TRI (trifast) they were cheap, have negligible debt, decent margin/ROCE, and seemed like a good idea at the time.

and topped up our L&G and our Fidelity World Index fund.

M&M

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Re: M & M's First Portfolio - Strategy Ideas?

#152041

Postby hiriskpaul » July 12th, 2018, 8:12 pm

Melanie wrote:We sold TUNE because it had risen about 20% in 7 weeks since ownership. I'm no expert, but that sort of thing, can't go on forever, so we thought we'd make a quick profit

A very good example of what I would not do. The first thing I would ask myself is "why has the price risen 20% in 7 weeks?". The second question is "Based on the current price and the latest information I have available (including the reason for the 20% rise), what is my assessment of future prospects and risks?". If you like, would I buy at the current price? Depending on the answer I might sell, but I might also conclude that risk/reward has changed to the extent that it was worth buying more. Current price and price history on their own tell you nothing about potential future returns and risks, so why react to them in a vacuum?

I have held a lot of option positions that have changed by more than 20% in 2 minutes, so perhaps I am more used to not reacting to volatility, but I would never sell just because I have made a quick profit. Trading is expensive but more expensive still is the time spent on finding and understanding an investment opportunity (unless you are picking with a pin?), so I would never throw away a good investment for a quick profit.

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Re: M & M's First Portfolio - Strategy Ideas?

#152069

Postby tjh290633 » July 12th, 2018, 10:14 pm

Further to what Paul says above, you have to remember that everything is relative. You sold a share because it has risen, but what happened to the rest of the market? If that rose similarly, would you sell everything that you held?

I have a portfolio of about 35 shares. I judge the performance of individual shares by comparison with what the rest have done. In terms of value, my yardstick is the value of the median holding. I set a limit of a multiple of the median value, if a holding exceeds that limit, then I trim it back by a proportion of the excess and reinvest the proceeds in a share holding with its value below the median, provided that the yield of that share is above the median yield of all the shares held.

I also set a lower limit of yield, usually about half the yield of the market. If the yield of a share held falls below that limit, then I consider selling the holding completely.

You need to set your own parameters for picking shares to buy, and also your parameters for selling them, either partly or completely. From the way you write, your actions are haphazard. This is not a good idea.

TJH

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Re: M & M's First Portfolio - Strategy Ideas?

#152096

Postby TheMotorcycleBoy » July 13th, 2018, 6:24 am

hiriskpaul wrote:The first thing I would ask myself is "why has the price risen 20% in 7 weeks?".

What financial benefit would knowing the answer (if it's even a question that can be answered) yield?

hiriskpaul wrote:If you like, would I buy at the current price? Depending on the answer I might sell, but I might also conclude that risk/reward has changed to the extent that it was worth buying more. Current price and price history on their own tell you nothing about potential future returns and risks, so why react to them in a vacuum?

We probably wouldn't have gone out of our way to buy them at the price we sold. :)

FWIW Here you can see where we sold
http://www.4-traders.com/FOCUSRITE-PLC- ... consensus/
it was at May 2, they were at 485p or so. They are now at 455p.

tjh290633 wrote:Further to what Paul says above, you have to remember that everything is relative. You sold a share because it has risen, but what happened to the rest of the market? If that rose similarly, would you sell everything that you held?

Well no, the rest of our portfolio had most certainly not risen by that figure in such a short time. Neither would it have been realistic for that to happen. Surely the only time that type of thing actually happened for real was in the height of the dotcom boom, and then surely the smart money was definitely those who sold up? So I think our judgement was shrewd. When we first started in equity (March) we weren't as well informed. We bought into about 7 firms in about 2 weeks; some were maybe over- some under-priced, some firms paid out a good dividend, others didn't.

Our first 7 equity investments looked fairly patchy for the first month or so. Mel will take a peek at the valuations most evenings. When we saw TUNE had risen quickly, we asked ourselves "does it pay out a large dividend? answer no", "will we make a healthy profit covering costs and costs to buy another firm answer yes", "could we buy TUNE again cheaply and repeat the process? answer yes". So things aren't haphazard.

tjh290633 wrote:You need to set your own parameters for picking shares to buy, and also your parameters for selling them, either partly or completely. From the way you write, your actions are haphazard. This is not a good idea.

That's a reasonable view for you to take. We are still in a learning process. I imagine you've been in this game for perhaps a couple of decades - and have had opportunity to buy cheap. Me and Mel are starting at the end of the run of QE where assets are generally over valued.

We are getting better at setting parameters to buy. In other forum threads I have discussed by creation of a spreadsheet system which I'm using to assess prospective firms based on the figures gleaned from annual reports. We trying to get more methodical...though I've always had an impulsive side to my nature, which is sometimes difficult to restrain!

It's fine setting the parameters of which you speak. To me the more difficult thing is making the execution at the correct time.

But like I said, we are still learning a lot of things, which you people have spent decades doing. Your advice is always well received!

Indeed, I found Paul's remark here

hiriskpaul wrote:I do my very best to ignore any thoughts I may have about risk/return. I found this hard at first, but have become better at it over time.

very astute/valid and is something which I aim to do.

Matt (and Mel!)

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Re: M & M's First Portfolio - Strategy Ideas?

#152125

Postby Stonge » July 13th, 2018, 10:14 am

tjh290633 wrote:I have a portfolio of about 35 shares. I judge the performance of individual shares by comparison with what the rest have done. In terms of value, my yardstick is the value of the median holding. I set a limit of a multiple of the median value, if a holding exceeds that limit, then I trim it back by a proportion of the excess and reinvest the proceeds in a share holding with its value below the median, provided that the yield of that share is above the median yield of all the shares held.
TJH


TJH are your holdings equally weighted?

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Re: M & M's First Portfolio - Strategy Ideas?

#152147

Postby hiriskpaul » July 13th, 2018, 11:15 am

Matt, I think you have misunderstood what I have said. I should have made it clear that I am following 2 very different and distinct strategies. When I said "I do my very best to ignore any thoughts I may have about risk/return." I was taking about my global passive equity portfolio. This is diversified across thousands of companies worldwide and is designed to capture market returns over the long term with very little effort. I don't take any notice of sector, country or regional risks, macro events, valuation metrics, etc. and as most of the funds are now passively invested I don't have any concerns over what fund managers might be up to. I could start making judgement calls on market timing and varying my asset allocation, but this would all take effort and may well end up doing more than good. As I have already said, if I exercised judgement a few years ago I would have much less in the US market and that certainly would have damaged returns

Aside from my global passive equity portfolio, I actively invest in individual securities. These are predominantly options and fixed income securities, such as corporate bonds, PIBS, preference shares, but they are occasionally ordinary shares as well. In my active portfolio I absolutely take notice of everything to do with the companies issuing those securities. I make regular assessments on risk and return following major announcements and market movements. Following my assessment I then choose to buy, sell, or (most of the time) do nothing.

As an extreme example of why not to sell after a quick 20% gain, I bought into Premier Oil bonds last year. Premier Oil were in big trouble following the collapse in the price of oil and was teetering on the edge due to a very large debt pile, but they had, in principal, agreed a restructuring with creditors. As part of the restructuring deal, I was given some warrants, which are exercisable into ordinary shares. Following the restructuring, the warrants quickly climbed by 20% and I could have taken a very quick profit, but they are now up over 500%, so I would have missed out on a substantial return over 1 year just for a 20% gain, albeit a quick gain. Studies of retail investors have found this "quick buck" behaviour is very common, as is panic selling, and as a result retail investors tend to underperform their investments by inopportune trading.

For a more mainstream example on why to ask the question "Why has the price risen 20% in 7 weeks?", take Ocado. On 17 May the share price jumped 40%. If you had bought a few weeks earlier you would have been as happy as Larry, sold and banked a 40% gain. But the share price did not jump for no reason. It had signed a very lucrative partnership agreement with Kroger. Suddenly the market woke up to hidden value within Ocado (its technology) and the intrinsic value of the company was suddenly much higher than it was before the announcement. Would it have been worth selling on 17 May for a quick buck or holding for long term growth potential? I don't have a view because Ocado is not something I am invested in, but I definitely would not have automatically sold without further consideration. After putting in the effort of understanding Ocado and making an investment, why not re-assess following the new information available? Following the re-assessment I may have formed the opinion that Ocado had excellent long term potential and even at the current price, the share was still worth holding.

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Re: M & M's First Portfolio - Strategy Ideas?

#152195

Postby tjh290633 » July 13th, 2018, 2:35 pm

Stonge wrote:
tjh290633 wrote:I have a portfolio of about 35 shares. I judge the performance of individual shares by comparison with what the rest have done. In terms of value, my yardstick is the value of the median holding. I set a limit of a multiple of the median value, if a holding exceeds that limit, then I trim it back by a proportion of the excess and reinvest the proceeds in a share holding with its value below the median, provided that the yield of that share is above the median yield of all the shares held.
TJH


TJH are your holdings equally weighted?

Nominally, yes, but the current spread is from about 65% of the median up to about 135%. My trigger point for trimming an overweight holding is 150% now, although it was 200% when I only had 20-25 holdings. Currently I sell about 25% of the overweight holding and reinvest to get more dividend income.

TJH

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Re: M & M's First Portfolio - Strategy Ideas?

#152346

Postby TheMotorcycleBoy » July 14th, 2018, 5:53 pm

hiriskpaul wrote:Matt, I think you have misunderstood what I have said. I should have made it clear that I am following 2 very different and distinct strategies. When I said "I do my very best to ignore any thoughts I may have about risk/return." I was taking about my global passive equity portfolio. This is diversified across thousands of companies worldwide and is designed to capture market returns over the long term with very little effort. I don't take any notice of sector, country or regional risks, macro events, valuation metrics, etc. and as most of the funds are now passively invested I don't have any concerns over what fund managers might be up to. I could start making judgement calls on market timing and varying my asset allocation, but this would all take effort and may well end up doing more than good. As I have already said, if I exercised judgement a few years ago I would have much less in the US market and that certainly would have damaged returns


hiriskpaul wrote:Aside from my global passive equity portfolio, I actively invest in individual securities. These are predominantly options and fixed income securities, such as corporate bonds, PIBS, preference shares, but they are occasionally ordinary shares as well. In my active portfolio I absolutely take notice of everything to do with the companies issuing those securities. I make regular assessments on risk and return following major announcements and market movements. Following my assessment I then choose to buy, sell, or (most of the time) do nothing.

Ok, thanks. I see what you mean, and agree with your rationale.

hiriskpaul wrote:As an extreme example of why not to sell after a quick 20% gain, I bought into Premier Oil bonds last year. Premier Oil were in big trouble following the collapse in the price of oil and was teetering on the edge due to a very large debt pile, but they had, in principal, agreed a restructuring with creditors. As part of the restructuring deal, I was given some warrants, which are exercisable into ordinary shares. Following the restructuring, the warrants quickly climbed by 20% and I could have taken a very quick profit, but they are now up over 500%, so I would have missed out on a substantial return over 1 year just for a 20% gain, albeit a quick gain. Studies of retail investors have found this "quick buck" behaviour is very common, as is panic selling, and as a result retail investors tend to underperform their investments by inopportune trading.

Yes, thanks - I agree. Sometimes hanging to a security actually results in a much bigger return eventually occurring.

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Re: M & M's First Portfolio - Strategy Ideas?

#152829

Postby TheMotorcycleBoy » July 17th, 2018, 9:48 am

hiriskpaul wrote:As an extreme example of why not to sell after a quick 20% gain, I bought into Premier Oil bonds last year. Premier Oil were in big trouble following the collapse in the price of oil and was teetering on the edge due to a very large debt pile, but they had, in principal, agreed a restructuring with creditors. As part of the restructuring deal, I was given some warrants, which are exercisable into ordinary shares. Following the restructuring, the warrants quickly climbed by 20% and I could have taken a very quick profit, but they are now up over 500%, so I would have missed out on a substantial return over 1 year just for a 20% gain, albeit a quick gain. Studies of retail investors have found this "quick buck" behaviour is very common, as is panic selling, and as a result retail investors tend to underperform their investments by inopportune trading.

Hi Paul,

I hope you don't mind, but seeing as Mel and I are still quite new to investing; I have been analysing our behaviour regards our sales of TUNE and CCC again after they made a quick 20% gain, whilst I agree that perhaps we could indeed have held out for 500%; but however that action (holding) would have been very speculative. (And unlike the the PMO bonds, the above equities were fairly high priced in the market, so the comparison you made is not that exact). However, the fact that we stood to make 20% (which annualised would be ~120%) was a cert, that is an example of a bird-in-hand etc. etc.

Furthermore, we then had our money back, which being already inside the ISA, could just be reapplied with very small charge to a new purchase, which with the balance of probabilities then may benefit a similar 20% or 500% rise - again all speculative at this point.

Although, I'm fairly new to private investing, I have been a keen observer of economics and the markets for a couple of decades. My view is that asset prices largely abstract and quite often bear very little reflection of reality. Asset valuation, in my naive opinion, is a very vague, I have read a lot of ARs in the last few months, and I have worked in corporate IT for 25 years; and a lot of what the board states in ARs or I have personally heard CEOs/FDs say, is very often fluffed-up nonsense, they always hype the good news, hide the bad, present KPIs (e.g. ROCE, FCF etc.) each using their own interpretations which glam up their individual business. Furthermore the market place is fickle is usually overreacts to news. As such, the buying and selling shares seems comparable to trading haphazardly priced virtual pieces of paper.

With the above in mind, this is how Mel and I are trying implement our equity purchases currently:

1. Avoid buying heavily indebted companies (by focusing on KPIs like interest cover, net debt/EBIT etc.). (We made an exception with DTY, since it's debt is fixed rate, and market is reasonable predictable, and it's stock looks underpriced).
2. Always buy firms with a dividend paying history.
3. Try to buy firms with good operating margins, ROCE and cash flows.
4. Try to buy firms with predicable markets, and hopefully ones that offer something unique.
5. Avoid firms with bizarre looking financials, lots of goodwill, lots of acquisitions. I recently reviewed TATE, DCG, MCRO, SGE, and GSK (all over the 2014-17 period), they all had varying degrees of this; in some cases I found their cash flows very weird with some years distorted by a big acquisition, and various loans coming in, going out, sales of harvested acquistions etc.

We really desire fairly predictable income, that's we always buy a div paying stock. I also think a stock which has little debt and pays divs will be less painful when the market next collapses.

So we are really trying to blend reasonable dividend paying shares that will hopefully survive a recession, and smaller firms e.g. AMS, BUR, TRI, BOY, which have minimal debt, higher profitability, with lower divs which should increase with time, probably along with their share price.

We see our portfolio as a mix of grown up (with some debt, but hopefully not too much) companies paying between 2.6-8.0% dividend yields and smaller firms which we think will either grow their dividend yields, or provide us a capital gain (due to market fluctuation) in the meantime.

Forgive me, if I seem pompous, it's unintentional, we are just trying to figure out a strategy that we find sensible/profitable.

Matt (and Mel)

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Re: M & M's First Portfolio - Strategy Ideas?

#152843

Postby Itsallaguess » July 17th, 2018, 10:30 am

Melanie wrote:
However, the fact that we stood to make 20% (which annualised would be ~120%) was a cert, that is an example of a bird-in-hand etc. etc.

Furthermore, we then had our money back, which being already inside the ISA, could just be reapplied with very small charge to a new purchase, which with the balance of probabilities then may benefit a similar 20% or 500% rise - again all speculative at this point.


I think the tendency to view your final point, where you see re-invested cash (following a sale of something that's risen quickly) as likely to go into something that's also then likely to continue rising from your new point of purchase, is perhaps clouding your judgement here.

If you agree that capital freed up following the sale of something that's risen quickly is just as likely to go into something new that may well go down from that point, then you might come to a different conclusion...

The problem with the current market, and certainly from around early 2009, is that carrying out the above strategy during that period may well have endorsed it as being a fruitful one, but that might well be purely because the market has generally been good now over many years - rising tides lifting all boats and all that....

So we allow ourselves to form what we think are 'grounded views' (your 'with the balance of probabilities then may benefit a similar 20% or 500% rise' above perhaps being one of them....) that are perhaps more a product of the market environment of that time than anything else, and carrying out the exact same process during less benign market periods might well prove that it's not always the case...

As an aside, I'm also an income-investor at heart, and like to invest in individual high-yielding companies as well high-yielding investment-trusts, and sometimes these company-level events, where something spikes up and subsequently drops the currently-available-yield, often present a good opportunity to embed some much-improved diversification into my HYP.

I've sometimes completely sold out of single-company situations that go on a good run over short periods, where their yield often drops well down the rankings, and I've re-invested the released capital back into a high-yielding investment trust instead.

I see this process as carrying out two important tasks for me -

1. Often gaining a better yield on the released capital when it's re-invested into the high-yielding IT.

2. Instantly gaining what's often a huge boost in my HYP diversification, certainly at a company level, and often in other areas if the chosen IT operates in different global markets, such as emerging markets etc.

It's a strategy that's been in my back-pocket for a few years now, and works very well for me personally.

It ticks my 'must do something' box if there's a particular situation where I really do feel that 'something must be done' (there isn't many, but I know enough about my investing personality that I also know they do and will occur...), and yet also delivers in two key areas for my overall HYP portfolio at the same time.

I fully understand that there are some here who will simply say 'don't do anything', but I know myself well enough to realise that this approach sometimes causes me more ongoing issues than I'd prefer, so I think having a strategy similar to the above, where we can 'allow' ourselves to 'do something' if we definitely feel the need to, and yet doing so also delivers portfolio benefits in a number of areas, is a good one to have available.

Cheers,

Itsallaguess

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Re: M & M's First Portfolio - Strategy Ideas?

#152852

Postby Dod101 » July 17th, 2018, 10:47 am

The fact is that anyone can be lucky with a trading strategy but you need to recognise that it is basically luck, sometimes based on decent analysis. But as Itsallaguess says, one or two lucky trades have a tendency to make us all think that this is not that difficult and so if we pick the right share, it can be repeated regularly. The chances are that it will not.

It is important to have a strategy and M & M seem to have ticked that box, but then they need to find out what works for them. Experience is a great teacher, and I suspect that if M & M simply get on with their strategy it will have been modified and refined in say 5 years time.

Good luck anyway. My approach is fairly close to Itsallaguess with only modest changes in my portfolio over any one year and almost none with my HYP unless there has been a dividend cut.

Dod

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Re: M & M's First Portfolio - Strategy Ideas?

#152886

Postby simoan » July 17th, 2018, 12:46 pm

Melanie wrote:I hope you don't mind, but seeing as Mel and I are still quite new to investing; I have been analysing our behaviour regards our sales of TUNE and CCC again after they made a quick 20% gain, whilst I agree that perhaps we could indeed have held out for 500%; but however that action (holding) would have been very speculative. (And unlike the the PMO bonds, the above equities were fairly high priced in the market, so the comparison you made is not that exact). However, the fact that we stood to make 20% (which annualised would be ~120%) was a cert, that is an example of a bird-in-hand etc. etc.

Furthermore, we then had our money back, which being already inside the ISA, could just be reapplied with very small charge to a new purchase, which with the balance of probabilities then may benefit a similar 20% or 500% rise - again all speculative at this point.


I have to completely agree with Paul here. This is not winning investor behaviour and you are trying to explain it away, and have made the assumption that your next trade will be a winner too, which is not good. In all likelihood you will lose money on your next purchase as most investors select more losers than winners. I think I suggested in the past reading some behavioural economics books (Kahnemann & Tversky, Thaler etc) to try and get to grips with some of the behavioural biases that can hamper investors.

You really need to view share investment as a process with a set of rules that you feel comfortable with implementing. We have discussed at length various metrics that you want to use to identify shares as part of your buying process but it is even more essential that you have a selling process too. It is not good enough to sell something just because it has gone up X%. There has to be a more fundamental reason for selling than "it went up 20% in a couple of weeks" - this is not a way to make money over the long term.

I thought you had read the "Art of Execution"? What you describe is classic "Raider" behaviour which is a losing strategy over the long term. If you combine it with "Rabbit" behaviour i.e. holding on to losing shares without selling, you have a cocktail for very poor performance and would be better off with passive ETF type investments. Don't worry, we've all done it, but experience and records of trades I keep in an Excel spreadsheet have shown me it has cost me a lot of money in days gone past. Not any more!

All the best, Si


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