What are your Investment Rules?

[kiora]

The whales win in the end?

"Microsoft's AI Strategy Validated By Q3 Earnings Beat

Summary
Microsoft's rise to become the world's largest company was always marked by a competitive prowess that Satya Nadella has embodied.
The AI revolution has led to a handful of companies, or "Big AI," buying up most of the AI-relevant talent.
Microsoft's proficiency in AI is improving the company across all segments and creating a virtuous cycle with its cloud offerings.
I suspect that Microsoft will begin seeing a lot of accretive developments for shareholders in the coming quarters."
https://seekingalpha.com/article/468..._free_eligible


Smart talent creates & seizes its own opportunities

[kiora]

"SPIVA® Australia Scorecard

The SPIVA Australia Scorecard measures the performance of
actively managed funds relative to benchmarks over various time
horizons, covering equity, real estate and bond funds, and providing
statistics on outperformance rates, survivorship rates and fund
performance dispersion. In this year-end 2023 edition, domestic
equity funds in New Zealand are included for the first time.
2023 Highlights
It was among the best of times and the worst of times for actively
managed funds. In the Australian Equity General category, more
than three-quarters of active managers failed to keep up with the
S&P/ASX 200, and a similar story was seen in the International
Equity General category"
https://6041596.fs1.hubspotuserconte...ource=hs_email

[kiora]

Some investors/FUM make decision making complicated out of necessity for their investment rules
The more stocks an investor/FUM holds the lower the returns
https://www.goodreturns.co.nz/articl...or+30+Apr+2024
https://www.octagonasset.co.nz/our-funds/growth-fund/

Diversification looks good in theory
https://www.investopedia.com/terms/d...sification.asp

[kiora]

"While good performance in one year doesn’t mean the same will happen the following year, an ASIC analysis found there was a strong correlation between poor performance in the past and in the future. It is also a strong indicator of future fund closures.

If it looks like a dog, it probably is."

https://www.livewiremarkets.com/wire...OVERED%20FUNDS

[Entrep]

Investing in a PIE managed fund instead of owning dividend stocks. The key idea is to withdraw 5% of the fund every year as a "pseudo dividend," which would be untaxed as capital gains, and any dividends paid into the fund would be taxed at 28%.

https://www.nzherald.co.nz/business/...OY5DPEXUQNBNY/

[Aaron]

Investing in a PIE managed fund instead of owning dividend stocks. The key idea is to withdraw 5% of the fund every year as a "pseudo dividend," which would be untaxed as capital gains, and any dividends paid into the fund would be taxed at 28%.

https://www.nzherald.co.nz/business/...OY5DPEXUQNBNY/

Capping your tax at 28% is an obvious advantage of PIE funds. I think Michael Cullen set it up that way to encourage wealthy people to save for their retirement.

But the tax free withdrawals? wouldn't this just be the same as selling a few shares each year if you were investing directly. As long as you are not a trader the sale of shares will not attract tax.

[Entrep]

But the tax free withdrawals? wouldn't this just be the same as selling a few shares each year if you were investing directly. As long as you are not a trader the sale of shares will not attract tax.

Yep that's right. I know it's so simple but the penny never really dropped for me as a way for that to be a cashflow in retirement... I had my mind so fixated on dividends.

[kiora]

"Do higher risk investments earn higher returns?

We compared the performance of three types of high-risk businesses to all the other companies:

Unprofitable companies
Companies with high levels of debt
Companies based in emerging markets

While the rare success stories captivate the attention of investors and the media, our study shows that unprofitable companies rarely live up to the promise.

In every one of the last 20 years, the loss-making companies in our study delivered a lower investment return than the profitable ones. Investing in a portfolio of loss-making companies over this period would have left you with just 5% of your starting capital. If you only invested in profitable businesses you would have generated a return of 243%.

We consider companies with Net Debt to EBITDA of over 3x to be highly indebted. Over the last 20 years a portfolio of these companies would have returned returned just 2% p.a. compared to 7.5% p.a. from those with better balance sheets.

Our data shows that investors haven’t been adequately rewarded for these risks. The emerging market companies in our study underperformed those in developed markets in 15 of the last 20 years. Over that period emerging market companies have returned on just 1.9% p.a. in AUD versus 6.7% p.a. for developed market companies."
https://www.livewiremarkets.com/wire...QUALITY%20WINS

[kiora]

"How to identify consistent compounders"

https://www.livewiremarkets.com/wire...%20COMPOUNDERS
Consistent compounders are businesses that are out to deliver persistent earnings and revenue growth over long periods of time. They are not exposed to underlying economic or commodity price cycles. At their core, they are the ASX's most consistent long-term growth stocks."
"Your odds of long-term investment success are far higher if you focus on businesses that have proven their capacity to consistently grow their earnings over time."
"These are businesses that are price makers, not price takers, and typically they aren't as exposed, or not exposed at all, to the underlying economic cycles. Certainly, they're not exposed to things beyond management's control, for example, commodity prices."
"It's a high-quality business with a dominant market position, typically they're able to set their own prices to a degree without the influence of global financial markets"
"If these stocks outperform over the long term, why would people invest in anything else?"
" people often try and overcomplicate investing."
"from a total return standpoint, the chances of success are higher if you're focused on businesses that can deliver compounded and persistent growth'
"Common factors in defining these quality compounders are things like return on equity or return on invested capital,grow those margins over time,consistently deliver earnings throughout the cycle and a line of sight on future growth opportunities"
"balance sheet strength and a stable balance sheet are important."
"management is very important, and things like governance and having internal rules around payout ratios, buybacks and capital management decisions"

"no commodities, resources, or materials companies would be consistent compounders?"

"The same goes for the banks as well. Banks are very much dependent on the economic cycle."

"look at the balance sheets of businesses in the tech space, for instance, or the healthcare space, these are typically happy hunting grounds for compounders. And again, it goes back to what I was speaking about earlier. They provide a service or a product that people are increasingly dependent on."
"these sectors are shielded against the broader economic cycle, and they're operating a system or delivering a product that isn't easily replicated by competitors."

"we are more "buy and hold" investors. Certainly, if the conditions are right, these are businesses that we see no reason for investors to be buying and selling them. You let the compounding do its job. Over time, the share price should follow the compounded earnings higher."

" if multiples are constant, then it makes a lot of sense if earnings and dividends are growing over time, then the share price should mathematically (at least) be higher as well"

[kiora]

Not yet ?

https://www.livewiremarkets.com/wire...erm=FIND%20OUT

"Why investors in ‘quality’ are headed for a fall

When the market wakes up to the rich prices it's paying for quality stocks, investors could be in for a shock
"If you’ve bought these companies at a fair price, sitting tight is the way to go. Thinking you can take some profits and buy back in when prices fall is a low-probability strategy. Plus, there are transaction costs and taxes to take into account.

So, if you’ve bought right, sit tight! What is quality?
Now, let’s define what we mean by quality. I’m not sure there is an official definition, but I’d say it would be something like this:

‘A company that generates sustained high returns on tangible capital (thanks to a competitive moat) and compounds those returns via reinvestment.’

The US tech companies are the pin-up stocks here. They can compound at high rates of return for years because the US economy is massive, giving them a huge growth profile from start-up phase to national dominance. Then, national success often leads to global success, which offers another growth runway and compounding opportunities."
"‘Higher prices are riskier, not less, and presage lower future returns, not higher. Sentiment can change quickly, and will change eventually, as company/industry specific issues and geopolitics, elections, inflation/stagflation/interest rates assume fluctuating levels of importance for market participants, the vast majority of which are not investing in equity markets for long term exposure to sustainably advantaged businesses."
"The vast majority of activity on the stock market has nothing to do with investment. There’s an army of analysts, brokers, investment bankers and traders that must be fed. If everyone is an ‘investor’, meaning they buy, hold and wait, a lot of stock market participants will go hungry. Activity is the name of the game.

Don’t forget that when you’re scratching your head about share price movements. In the short-term, it is nearly all noise"

"The more well-known one is to invert the P/E ratio and turn it into an earnings yield. So a stock on a P/E of 20 trades on an earnings yield of 5% (1/20)

Another way to assess the earnings yield, and make comparisons across businesses easier, is to adjust for differences in debt and tax payments. You do this by using EBIT (earnings before interest and tax) as your earnings proxy and EV (enterprise value, which is a company’s market cap plus net debt) as the price proxy.

The earnings yield of a company thus becomes EBIT/EV"