Shares as income

[Lewylewylewy]

I'm relatively new at share trading/investing, and while i find it relatively easy to pick winners and trends, my approach to formulating a consistent strategy is immature.

I was intrigued by something fungus pudding suggested to me about developing a portfolio of reits, which I could accumulate over time to use as an income source. I really liked the idea of this, but am concerned about the natural ebbs in the share market.

So I decided to develop a portfolio of about $50k in which I could invest to accumulate to about $150k in order to develop a dividend income with which to boulster my retirement income. This would support my super and rental income from an additional property I own.

My problem is that I'm 34 years old, and statistically speaking, I'm almost certainly due at least one massive market crash in my life.

My nature is such that I love the idea of a passive income, but feel like there's no such thing. Am I asking for trouble investing in reits then burying my head in the nice, warm sand?

Perhaps if be better off sticking to a highly mobile portfolio that I can use to generate money to buy rental property?

I'd love to hear the opinions of some investors who've weathered market storms such as those in 1987 and 2008. Particularly Percy, if you would be willing to share?

[BeeBop]

I have been through market storms. The only time I was hit was via my employers retirement fund where I had no control. By the time I left the company it had recovered to a degree.

In all other instances where I hold individual stocks that I value myself, I have not been hit from a total portfolio perspective. This is because I buy value stocks (in the down times) and in many instances sell them when they get over my fair price - usually pre a boom. The money goes into mortgages and then I start again. Take one small example, SKL, bought them at 1.27 noting they were cyclical and then sold at circa 1.50 recently, THL bought vey low and is now getting up towards my fair value. On the other hand, I will hold onto shares like GMT. All my NZ stocks pay dividends and are reinvested in.

i cannot remember who came up with a formula called a CCVI, but I used it in conjunction with a few other measures (targets are between 15 and 25, where under 15 is not good value).

[kiora]

I have been through market storms. The only time I was hit was via my employers retirement fund where I had no control. By the time I left the company it had recovered to a degree.

In all other instances where I hold individual stocks that I value myself, I have not been hit from a total portfolio perspective. This is because I buy value stocks (in the down times) and in many instances sell them when they get over my fair price - usually pre a boom. The money goes into mortgages and then I start again. Take one small example, SKL, bought them at 1.27 noting they were cyclical and then sold at circa 1.50 recently, THL bought vey low and is now getting up towards my fair value. On the other hand, I will hold onto shares like GMT. All my NZ stocks pay dividends and are reinvested in.

i cannot remember who came up with a formula called a CCVI, but I used it in conjunction with a few other measures (targets are between 15 and 25, where under 15 is not good value).

Hi BB.Out of interest what is CCVI methodology?I can only find Climate change vunerabilty index ?

[kiora]

I'm relatively new at share trading/investing, and while i find it relatively easy to pick winners and trends, my approach to formulating a consistent strategy is immature.

I was intrigued by something fungus pudding suggested to me about developing a portfolio of reits, which I could accumulate over time to use as an income source. I really liked the idea of this, but am concerned about the natural ebbs in the share market.

So I decided to develop a portfolio of about $50k in which I could invest to accumulate to about $150k in order to develop a dividend income with which to boulster my retirement income. This would support my super and rental income from an additional property I own.

My problem is that I'm 34 years old, and statistically speaking, I'm almost certainly due at least one massive market crash in my life.

My nature is such that I love the idea of a passive income, but feel like there's no such thing. Am I asking for trouble investing in reits then burying my head in the nice, warm sand?

Perhaps if be better off sticking to a highly mobile portfolio that I can use to generate money to buy rental property?

I'd love to hear the opinions of some investors who've weathered market storms such as those in 1987 and 2008. Particularly Percy, if you would be willing to share?

Hi LLL My 2 cents Investors have weathered the storms of 87 & 08 by investing in company's that have weathered the storms.ie pick company's that you feel will continue to grow their earnings 5,10,20 years out,have large MOAT,rising cash flow positive,rising paying dividends.Look at the management of the company,they are the ones you will be investing in to grow your investment.Avoid spec shares or only invest in these if you can afford to loose it all and only 10% of portfolio.
Using leverage ie mortgaging property when shares start rising after a crash will get you there quicker eg after 87 crash I made back all my losses (60% loss due to investing in specy's) in 2 years by investing in shares that fitted the above criteria.If you can make 20 % pa return on shares paid by a mortgage at 5 % you are on a winner.But repay your borrowings when the markets get wobbly again.
Also reinvest,reinvest and reinvest all share proceeds from dividends and takeovers until you have enough to stop working and become an investor full time

[artemis]

An alternative to dividends (which may or may not carry imputation credits) is to take tax free capital gains as income by selling shares as income is needed.

[BeeBop]

Kiora - the CCVI is cumulative cash value index. (Eps+dips /share price in $)+(eps-dps/Nta in $). I like it as a basic screen assuming debt ratios and sales ratios (depending on company type) have passed my criteria. Of course some shares don't fit the regular mold but for me, most of my selections are regular. I can hold some shares for years (haven't held for longer than 7 yrs though) but mostly medium term. All profits essentially are banked into the mortgages. Maybe I could make a lot more but overall my share returns are in the teens once averaged over a few years i.e. Less than 3% during the gfc but huge afterwards e.g. mHI, FPA, fre and so on. My current little winners are THL and Npx. Total personal debt level is around 34% with the bulk of asset as properties.

i think the CCVI calculation came from here in the early 2000s so may be in the archives, or, came from chat in the Aussie hot copper site of a similar time. I do have the original print out so will hunt it out if you are interested.

[Jay]

You can download the CCVI PowerPoint presentation here: http://www.lainie.com.au/sharesguru/index.html

I think it was percy or Oldrider who I saw mention it.

[fungus pudding]

An alternative to dividends (which may or may not carry imputation credits) is to take tax free capital gains as income by selling shares as income is needed.

That leaves an ever diminishing pile of shares; in other words you would be living off capital rather than income - and it may not be tax free.

[percy]

I'm relatively new at share trading/investing, and while i find it relatively easy to pick winners and trends, my approach to formulating a consistent strategy is immature.

I was intrigued by something fungus pudding suggested to me about developing a portfolio of reits, which I could accumulate over time to use as an income source. I really liked the idea of this, but am concerned about the natural ebbs in the share market.

So I decided to develop a portfolio of about $50k in which I could invest to accumulate to about $150k in order to develop a dividend income with which to boulster my retirement income. This would support my super and rental income from an additional property I own.

My problem is that I'm 34 years old, and statistically speaking, I'm almost certainly due at least one massive market crash in my life.

My nature is such that I love the idea of a passive income, but feel like there's no such thing. Am I asking for trouble investing in reits then burying my head in the nice, warm sand?

Perhaps if be better off sticking to a highly mobile portfolio that I can use to generate money to buy rental property?

I'd love to hear the opinions of some investors who've weathered market storms such as those in 1987 and 2008. Particularly Percy, if you would be willing to share?

1987 revisited.
My business was in poor shape.I was in hospital at the time of the crash fighting for my life.My wife with the help of friends moved my bookshop into smaller premises.
In mid 1988 I went and worked part time for a friend doing his paper work in his bookshop, and selling my books to schools partime.
Was very difficult as I was not in good health.Late 1989 we sold our house for about $130,000 and brought a flat for just under $80,000.
I can't remember how much I lost in the crash,but with cash from our house sale and a small amount of share portfolio I decided to put most of the money into very solid companies.About $70,000 into the market.In 1990 I sold my retail business,which was not worth much, and put that money into the market.
1995 my bookselling business had built up to the stage I decided to do it full time.It then took off.In about 2000 I had made so much in the market we sold or flat and moved more up market.
Offcourse I sold the wrong shares.
GFC. I lost about $300,000 to $400,000 in SCY,NPX and PGC.etc
After each HUGE set back it takes time to recover.You must reinvent your self,see where you went wrong and where you were right.
911.My portfolio dropped over $80,000 that week.Only took about 6 weeks before it recovered.
Today.Well last year I paid off one daughters modest mortgage.At present time I am paying to have the other daughters house remodelled.Every room except kitchen and bathroom.Will include new carpet.We have also helped out family members.
So I have a mortgage free lovely home,a 7 figure share portfolio made up with good NZ dividend paying companies,and a few wild Aussie stocks.My bookselling income more than covers our everyday expenses,and that leaves our share portfolio to compound on its own.

[percy]

Lewylewylewy.
Being "well positioned" for the next crash.
I think we need to be sensible and not to try to be clever.
I look for a number of things at present.First of all sectors with tailwinds.That includes exporters,retirement sector,and tourism.
Then I look for companies with strong balance sheets,little debt,strong cashflow, whose ROE is high and their Capex is low.Paying a dividend is a good discipline.We can get all these figures from www.4-traders.com
Add to that a bank,a power company and a property company.[I like AIA with its huge land bank].
Buying 5 or 6 power generators,property companies ,or banks does not make a lot of sense to me.
I think the shares I have mentioned in the thread "where to invest" should stand the test of time.

[thestg]

i cannot remember who came up with a formula called a CCVI, but I used it in conjunction with a few other measures (targets are between 15 and 25, where under 15 is not good value).

How dose CCVI equate to a share price? I used the formula with figures obtained from ANZ Securities & got CCVI for AIR 39.35 - CCVI for MEL 6.62. Both are outside the 15 - 25 targets.

[King1212]

1987 revisited.
My business was in poor shape.I was in hospital at the time of the crash fighting for my life.My wife with the help of friends moved my bookshop into smaller premises.
In mid 1988 I went and worked part time for a friend doing his paper work in his bookshop, and selling my books to schools partime.
Was very difficult as I was not in good health.Late 1989 we sold our house for about $130,000 and brought a flat for just under $80,000.
I can't remember how much I lost in the crash,but with cash from our house sale and a small amount of share portfolio I decided to put most of the money into very solid companies.About $70,000 into the market.In 1990 I sold my retail business,which was not worth much, and put that money into the market.
1995 my bookselling business had built up to the stage I decided to do it full time.It then took off.In about 2000 I had made so much in the market we sold or flat and moved more up market.
Offcourse I sold the wrong shares.
GFC. I lost about $300,000 to $400,000 in SCY,NPX and PGC.etc
After each HUGE set back it takes time to recover.You must reinvent your self,see where you went wrong and where you were right.
911.My portfolio dropped over $80,000 that week.Only took about 6 weeks before it recovered.
Today.Well last year I paid off one daughters modest mortgage.At present time I am paying to have the other daughters house remodelled.Every room except kitchen and bathroom.Will include new carpet.We have also helped out family members.
So I have a mortgage free lovely home,a 7 figure share portfolio made up with good NZ dividend paying companies,and a few wild Aussie stocks.My bookselling income more than covers our everyday expenses,and that leaves our share portfolio to compound on its own.

U are legend Percy....7 figures in share portfolio. Hope u sleep well every night?

[LAC]

How dose CCVI equate to a share price? I used the formula with figures obtained from ANZ Securities & got CCVI for AIR 39.35 - CCVI for MEL 6.62. Both are outside the 15 - 25 targets.

Yeah I couldn't figure it out either, was planning to do some research tonight on how those values are created. I got EBO outside the 15-25 by far (due to low NTA I suspect, so might not have been the best example to use)
But from the example posted on http://www.lainie.com.au/sharesguru/index.html I too am not sure how the Share price was equated from CGVI

[Lewylewylewy]

Hmmm, lots of wise words from people in this thread... I still feel no closer to making a solid decision on my strategy.

Having just dipped my toes in shares I think Percy, you're very brave to be swimming in so many shares. My retirement plans (as they currently stand) only have luxury items covered by income from shares, the remainder I will probably be relying on govt pension (eek) and income from my rental. I suppose with over a million in shares, if you got only 5% from the dividend and zero growth, that still gives you at least 50k pa, plus govt pension, which is a good target in itself. Even if you get your shares halved, you should still be OK :) Perhaps this could be a target for me to aim for...

Whilst I do enjoy my gambling foray on the NZX, I would like to eventually be able to create a passive income that I don't have to watch / worry about. Perhaps this isn't possible if I'm relying on that income.

My current line of thinking is to have a small part of my portfolio that I ignore and build slowly, then have the majority of my portfolio for gambling on stocks that match my current method for identifying good picks. Then using resultant profit for building property investments and paying off my mortgage.

Since we're all sharing, here's a list of shares I currently invest in:

ANZ Smallish holding
GMT Small holding
IFT Small holding
KPG Small holding
NPT Small holding
PCT Small holding
PFI Small holding
POT Medium holding
RBD Small holding
SCL Small holding
STR Small holding
SUM Small holding (planning to build)
THL Large holding
TME Small holding
VHP Medium holding
I will likely sell THL at some point this year and use the money for share trading, rather than investing.

Here's what I plan to add to my "hold and ignore" portfolio:
AIA
WBC
ARV
CVT
DGL
FPH
GXH
MET
NPX
SEK

I do kind of which I hadn't spread myself so thinly and just invested in a few core holdings that I felt would increase (you can see my picks in this year's competition, though I'd probably refine those if I were investing today). Still, overall, I'm sitting at about 15% gain since the start of the year, which is OK but not magical :)

[Jantar]

I'm relatively new at share trading/investing, and while i find it relatively easy to pick winners and trends, my approach to formulating a consistent strategy is immature.
.........
So I decided to develop a portfolio of about $50k in which I could invest to accumulate to about $150k in order to develop a dividend income with which to boulster my retirement income. .....
Almost ditto. I played around with shares from 1976 till around 2001 then sold what shares I had to buy my current property. I decided to get back into shares only 2 years ago with the aim of having around $300k invested by the time I retire in 4 years time, and so far I'm right on track. I have mainly dividend paying shares (heavily into energy), with SCL as a growth share and NWF as a speculative one.

In that regard I have been an investor during the 1987 crash and a couple of major corrections, and I can't really say I lost anything as a result of any such storms. On paper I lost around $10k in 1987, but that was after taking enough profit to buy a new car and a few other things. In the bit of a bear market last year, I gained nicely. :D

[percy]

Hmmm, lots of wise words from people in this thread... I still feel no closer to making a solid decision on my strategy.

Having just dipped my toes in shares I think Percy, you're very brave to be swimming in so many shares. My retirement plans (as they currently stand) only have luxury items covered by income from shares, the remainder I will probably be relying on govt pension (eek) and income from my rental. I suppose with over a million in shares, if you got only 5% from the dividend and zero growth, that still gives you at least 50k pa, plus govt pension, which is a good target in itself. Even if you get your shares halved, you should still be OK :) Perhaps this could be a target for me to aim for...

Whilst I do enjoy my gambling foray on the NZX, I would like to eventually be able to create a passive income that I don't have to watch / worry about. Perhaps this isn't possible if I'm relying on that income.

My current line of thinking is to have a small part of my portfolio that I ignore and build slowly, then have the majority of my portfolio for gambling on stocks that match my current method for identifying good picks. Then using resultant profit for building property investments and paying off my mortgage.

Since we're all sharing, here's a list of shares I currently invest in:

ANZ Smallish holding
GMT Small holding
IFT Small holding
KPG Small holding
NPT Small holding
PCT Small holding
PFI Small holding
POT Medium holding
RBD Small holding
SCL Small holding
STR Small holding
SUM Small holding (planning to build)
THL Large holding
TME Small holding
VHP Medium holding
I will likely sell THL at some point this year and use the money for share trading, rather than investing.

Here's what I plan to add to my "hold and ignore" portfolio:
AIA
WBC
ARV
CVT
DGL
FPH
GXH
MET
NPX
SEK

I do kind of which I hadn't spread myself so thinly and just invested in a few core holdings that I felt would increase (you can see my picks in this year's competition, though I'd probably refine those if I were investing today). Still, overall, I'm sitting at about 15% gain since the start of the year, which is OK but not magical :)

I did pay off all debts early,because of my health at the time.
I think all your shares you have mentioned will serve you well.
I do not follow STR.
Just keep doing what you are doing.If you need funds for anything sell your worst performer.
Be careful share trading.Good shares always outperform trading stock.
Try to think of buying a stock never to sell it.I only have 10% of my portfolio in specs/aggressive small caps stocks.

[artemis]

That leaves an ever diminishing pile of shares; in other words you would be living off capital rather than income - and it may not be tax free.

Not necessarily a problem. Consider it rebalancing the portfolio. Similar to selling up in Auckland and buying cheaper elsewhere.

If capital gains are not tax free - whether shares, property or other assets - it may not be worth doing. So don't.

Folk can do their own sums - it is an alternative to be considered especially for divs that don't carry imputation credits.

[artemis]

Not necessarily a bad idea to spread thinly at the outset. Having skin in the game, even if not much, generally means knowledge of that company increases faster.

[Bjauck]

...

I do kind of which I hadn't spread myself so thinly and just invested in a few core holdings that I felt would increase (you can see my picks in this year's competition, though I'd probably refine those if I were investing today). Still, overall, I'm sitting at about 15% gain since the start of the year, which is OK but not magical :) Sounds like a very good return since beginning of the year - the gross index is up by only about 3.6%
.

[BeeBop]

For CCVI (as I use it) does not give share price but a number that indicates value. If lower than 15 it is less than a value company (I won't buy it, or will be a trigger to consider selling). Between 15 and 25 is simple, standard under valued, over 25 maybe there are some weird figures or it is just super good value. As with all measures, it is merely a tool and has served me exceedingly well as it fits most of my stock types. They must really be retaining some earnings, have standard type Nta (doesn't work well for IT companies I.e. I got caught with an airline inventory company that had value tied up in assets that weren't really assists - the entire company went down taking my GBP with it). And of course, never use it without debt, cashflow and reviewing the companies strategic plans!

[fungus pudding]

Not necessarily a problem. Consider it rebalancing the portfolio. Similar to selling up in Auckland and buying cheaper elsewhere.

If capital gains are not tax free - whether shares, property or other assets - it may not be worth doing. So don't.

Folk can do their own sums - it is an alternative to be considered especially for divs that don't carry imputation credits.

Sure but selling for income does not provide money for new shares or rebalancing. You can't do both with the same pile of dough.
I don't know the share market at all but put 1 million into LPTs over the last 6 or so years. I don't sell things so just stack up the income. These give me over 60k a year, tax paid which is equivalent to just over 90k taxable. The equivalent of 9% return plus the capital gain. That's the pie advantage as my marginal tax rate is 33%. (other income is from commercial property and superannuation) The lpts have increased by 35% to be 1.35mill. Whether shares could have been better I don't know but I don't see lpts as risky as long as share price is within cooey of NTA of the land, bricks and mortar. IOW the asset is tangible as opposed to the goodwill which forms part of the value of most businesses. 'keep stacking up the income' is my motto.

[voltage]

This is an interesting thread. Percy and fp have had a set of rules they have followed and stuck too it. That has helped there success. I would be interested if you globally diversify at all and if not is that a risk.

[BeeBop]

You can download the CCVI PowerPoint presentation here: http://www.lainie.com.au/sharesguru/index.html

I think it was percy or Oldrider who I saw mention it.

I have just gone up to my "office" and found my original source of the CCVI/CGVI and yes, snap! sharesguru! The Author on the chat was Kan-Guru and posted on Fri 16 May 2003 at 10:26am. (Topic was "Margin of Safety. NTA & Book Value)

Our portfolio grew so fast in those days. We were in Aussie shares. One I remember was HWE (Henry Walker Elton). I don't know how many times it cycled up and down through our CCVI levels. We finally sold it in 2004 and put the money into an Auckland house as we were shifting there. Days afterwards, the brokerage house went "down" and a month or two later so did HWE! We didn't look at debt or anything in our shares then. Now, after realising our charmed luck, we are far more detailed and thorough in our analysis.

Now we have stopped buying properties, have one year's worth of mortgage safety payments (i.e. flexible loan is zeroed), so now all of our spare cash is being diverted back into building our share portfolio again. I may be selling my THL and NPX to purchase some lower valued stocks. Selling THL as is is out of my CCVI hold level and is not showing me high value anymore. Will also sell NPX as it has done very well and I am not sure of its future. I will go safe and put the funds into GMT and/or another property trust for the for-ever-term (unless fortunes change of course).

Cheers!

[lissica]

U are legend Percy....7 figures in share portfolio. Hope u sleep well every night?

Superannuation funds, Kiwisaver etc have millions and even billions in a share portfolio.

Do fund managers sleep well? Personally, I think it's less stressful looking after my own money than someone else's.

[kiora]

I have just gone up to my "office" and found my original source of the CCVI/CGVI and yes, snap! sharesguru! The Author on the chat was Kan-Guru and posted on Fri 16 May 2003 at 10:26am. (Topic was "Margin of Safety. NTA & Book Value)

Our portfolio grew so fast in those days. We were in Aussie shares. One I remember was HWE (Henry Walker Elton). I don't know how many times it cycled up and down through our CCVI levels. We finally sold it in 2004 and put the money into an Auckland house as we were shifting there. Days afterwards, the brokerage house went "down" and a month or two later so did HWE! We didn't look at debt or anything in our shares then. Now, after realising our charmed luck, we are far more detailed and thorough in our analysis.

Now we have stopped buying properties, have one year's worth of mortgage safety payments (i.e. flexible loan is zeroed), so now all of our spare cash is being diverted back into building our share portfolio again. I may be selling my THL and NPX to purchase some lower valued stocks. Selling THL as is is out of my CCVI hold level and is not showing me high value anymore. Will also sell NPX as it has done very well and I am not sure of its future. I will go safe and put the funds into GMT and/or another property trust for the for-ever-term (unless fortunes change of course).

Cheers!

Thanks BB looks interesting I'll look into this thanks

[King1212]

Superannuation funds, Kiwisaver etc have millions and even billions in a share portfolio.

Do fund managers sleep well? Personally, I think it's less stressful looking after my own money than someone else's.

Of course they will sleep well....it is not thier money!

[percy]

Sleepless nights.
Last July I had a few sleepless nights.My two largest holdings HBL and EBO were not performing very well.
At that time "the noise" was HBL were just about the only bank lending to dairying and were likely to suffer massive losses.Also their no deposit motor vehicle finance would also cost them plenty.Well I rang the CFO of HBL.Left a message for him to ring me,which he did.He took a lot of time explaining the whole promotion to me.Made sense. I also learnt HBL had a small exposure to dairying.I then went back and read every announcement and forecast HBL had made.I decided the reasons I brought HBL were still valid.
EBO.The market was unsure how the new CEO would perform.I had talked to him at the previous agm and was most impressed with him.
Being a shareholder for 25 years I was very confident in the directors and management and the sector they are in.Again the reasons I had held EBO for so long remained.
Since that time I have had two shares I lost faith in,IQE and SKL.Sold straight away.IQE at a considerable loss,[brought at about $1.80 and sold at $1.35].SKL I made a modest profit.No more sleepless nights,thank goodness.

[lissica]

Of course they will sleep well....it is not thier money!

I guess that is the alternate way of looking at it.

I look after the family investments....luckily the majority of it is my own so I can sleep well.

[LAC]

Sleepless nights.
Last July I had a few sleepless nights.My two largest holdings HBL and EBO were not performing very well.
At that time "the noise" was HBL were just about the only bank lending to dairying and were likely to suffer massive losses.Also their no deposit motor vehicle finance would also cost them plenty.Well I rang the CFO of HBL.Left a message for him to ring me,which he did.He took a lot of time explaining the whole promotion to me.Made sense. I also learnt HBL had a small exposure to dairying.I then went back and read every announcement and forecast HBL had made.I decided the reasons I brought HBL were still valid.
EBO.The market was unsure how the new CEO would perform.I had talked to him at the previous agm and was most impressed with him.
Being a shareholder for 25 years I was very confident in the directors and management and the sector they are in.Again the reasons I had held EBO for so long remained.
Since that time I have had two shares I lost faith in,IQE and SKL.Sold straight away.IQE at a considerable loss,[brought at about $1.80 and sold at $1.35].SKL I made a modest profit.No more sleepless nights,thank goodness.

Im having sleepless nights on why I sold off EBO a few weeks ago haha, will re-enter soon but just figuring out what to sell, portfolio eventually looking better after "keeping the winners and getting rid of losers" (with the exception of EBO). Best quote I have picked up on ST.....
Biggest mistakes I have made over the very few years investing is selling winners to take profits and keeping losers to recoup some losses.

[King1212]

Sleepless nights.
Last July I had a few sleepless nights.My two largest holdings HBL and EBO were not performing very well.
At that time "the noise" was HBL were just about the only bank lending to dairying and were likely to suffer massive losses.Also their no deposit motor vehicle finance would also cost them plenty.Well I rang the CFO of HBL.Left a message for him to ring me,which he did.He took a lot of time explaining the whole promotion to me.Made sense. I also learnt HBL had a small exposure to dairying.I then went back and read every announcement and forecast HBL had made.I decided the reasons I brought HBL were still valid.
EBO.The market was unsure how the new CEO would perform.I had talked to him at the previous agm and was most impressed with him.
Being a shareholder for 25 years I was very confident in the directors and management and the sector they are in.Again the reasons I had held EBO for so long remained.
Since that time I have had two shares I lost faith in,IQE and SKL.Sold straight away.IQE at a considerable loss,[brought at about $1.80 and sold at $1.35].SKL I made a modest profit.No more sleepless nights,thank goodness.

good on u Percy. Yes I would definitely avoid IQE....don't take my words wait till this June or July once SFO finishes the investigation.

[GTM 3442]

Superannuation funds, Kiwisaver etc have millions and even billions in a share portfolio.

Do fund managers sleep well? Personally, I think it's less stressful looking after my own money than someone else's.

I think it's more stressful having the New Zealand financial services industry managing my money. Personally.

[couta1]

Have a good sized cash pile just waiting for this current rampant little bubble to have a wee pop, don't see much value anywhere currently except from a trading perspective. PS- Looking forward to a market winter, let the snow begin:cool:

[RGR367]

Have a good sized cash pile just waiting for this current rampant little bubble to have a wee pop, don't see much value anywhere currently except from a trading perspective. PS- Looking forward to a market winter, let the snow begin:cool:

"Winter Is Coming" Couta1. In fact it's on the 25th of April for the Game of Thrones :cool:

[Lewylewylewy]

Have a good sized cash pile just waiting for this current rampant little bubble to have a wee pop, don't see much value anywhere currently except from a trading perspective. PS- Looking forward to a market winter, let the snow begin:cool:


I think that's a smart approach to investing (only invest when the market's in panic), it is hard to find value at the moment too. I'm happy with the shares I have... but would I buy them if I had cash now? ... Probably not (Not because I'm specifically expecting a burst).


Having said that, I think VHP are a good buy at the moment, and FHP will have some upward movement unless Trump gets in, in which case there will be a bit of panic / bargain buying for those who're ok with a little risk due to Mexican operations. SCL are also good, but very expensive at the moment. I think SCL could go to $3.80, but I'm not gambling on that guess. There's also a potential opportunity I'm eyeing up but not willing to share at the moment (sorry peeps, I try to share as much as possible, but I've gotta keep something for myself).


In terms of whether I think there will be a pop... I don't know. I think there are some strong companies on the NZX, but accept that global weirdy stuff is afoot.

[skid]

I think that's a smart approach to investing (only invest when the market's in panic), it is hard to find value at the moment too. I'm happy with the shares I have... but would I buy them if I had cash now? ... Probably not (Not because I'm specifically expecting a burst).


Having said that, I think VHP are a good buy at the moment, and FHP will have some upward movement unless Trump gets in, in which case there will be a bit of panic / bargain buying for those who're ok with a little risk due to Mexican operations. SCL are also good, but very expensive at the moment. I think SCL could go to $3.80, but I'm not gambling on that guess. There's also a potential opportunity I'm eyeing up but not willing to share at the moment (sorry peeps, I try to share as much as possible, but I've gotta keep something for myself).


In terms of whether I think there will be a pop... I don't know. I think there are some strong companies on the NZX, but accept that global weirdy stuff is afoot.

Mexican operations---Its been proven (by those that actually think)that that silly wall he talks about is economically impossible---talk is cheap

[Lewylewylewy]

lol. Agreed, hence the "bargain buying" comment ;)

[GR8DAY]

......SHARES AS INCOME?......easy , buy HLG today and pick up a 6mnthly income in a couple of weeks equal to at least 2 years of bank deposits,..........then you've got the other 6mnths divi as a huge bonus......total years income maybe equivalent to 12%plus...........more than 4yrs bank income,. NO CONTEST!!

[percy]

......SHARES AS INCOME?......easy , buy HLG today and pick up a 6mnthly income in a couple of weeks equal to at least 2 years of bank deposits,..........then you've got the other 6mnths divi as a huge bonus......total years income maybe equivalent to 12%plus...........more than 4yrs bank income,. NO CONTEST!!

Huge contest.!!!
Sounds great in theory.
HLG has had great management,and they will require all their skills to keep the business in good shape.
The warm Autumn means their more profitable winter wear sales have been slow.You never recover missed sales.
The low NZ $ is working against them putting pressure on margins.
They are also facing very real competition from,WHS,Rebel Sport,The Farmers,Ezibuy,Postie Plus, and this will increase with strong overseas retailers opening up in NZ.Yes their internet sales are improving,but again there is growing competition.
Project 3% increase in sales pa over the next two years, may only be achieved at the expense of margin.
So be very careful,as the sp may be well under today's price, in two years time,and the dividend could be under pressure..

[lissica]

I think it's more stressful having the New Zealand financial services industry managing my money. Personally.

Agree, which is why I don't let them.

At least in NZ Kiwisaver is voluntary. In Australia, I have Compulsory Super feeding the financial services industry whether I like it or not.

[couta1]

"Winter Is Coming" Couta1. In fact it's on the 25th of April for the Game of Thrones :cool: Coming earlier than I thought then. If anyone thinks this current fairytale run will continue for ever then they are in fairyland and hey I've been at that place before but then I woke up and got my butt kicked severely by a hoard of ugly trolls for which the Injuries are taking a long time to heal:cool:

[percy]

Coming earlier than I thought then. If anyone thinks this current fairytale run will continue for ever then they are in fairyland and hey I've been at that place before but then I woke up and got my butt kicked severely by a hoard of ugly trolls for which the Injuries are taking a long time to heal:cool:

I have enjoyed living in Fairyland for the past 3 or 4 years.
In this year's ST NZ competition I picked my 5 largest holdings.
Life in Fairyland continues, with me being in 6th place being up 16.84%.[in 3 months]
Maybe I have just invested in the right stocks?
Yet I still feel I remain "well positioned."

[Whipmoney]

1987 revisited.
My business was in poor shape.I was in hospital at the time of the crash fighting for my life.My wife with the help of friends moved my bookshop into smaller premises.
In mid 1988 I went and worked part time for a friend doing his paper work in his bookshop, and selling my books to schools partime.
Was very difficult as I was not in good health.Late 1989 we sold our house for about $130,000 and brought a flat for just under $80,000.
I can't remember how much I lost in the crash,but with cash from our house sale and a small amount of share portfolio I decided to put most of the money into very solid companies.About $70,000 into the market.In 1990 I sold my retail business,which was not worth much, and put that money into the market.
1995 my bookselling business had built up to the stage I decided to do it full time.It then took off.In about 2000 I had made so much in the market we sold or flat and moved more up market.
Offcourse I sold the wrong shares.
GFC. I lost about $300,000 to $400,000 in SCY,NPX and PGC.etc
After each HUGE set back it takes time to recover.You must reinvent your self,see where you went wrong and where you were right.
911.My portfolio dropped over $80,000 that week.Only took about 6 weeks before it recovered.
Today.Well last year I paid off one daughters modest mortgage.At present time I am paying to have the other daughters house remodelled.Every room except kitchen and bathroom.Will include new carpet.We have also helped out family members.
So I have a mortgage free lovely home,a 7 figure share portfolio made up with good NZ dividend paying companies,and a few wild Aussie stocks.My bookselling income more than covers our everyday expenses,and that leaves our share portfolio to compound on its own.

Thanks for sharing your story percy, having only been young enough to go through the GFC (which was relatively mild from an NZ perspective) it's very refreshing to hear a personal account of the 87' crash which was far more destructive in our little land.

As you probably know generally I take what some would consider high risk stock plays through which I focus intensely on one or two stocks (e.g investing in the diligent and Intueri turnarounds). I watch these investments like a hawk, build models around multiple expectations of earnings scenarios and positive/adverse etc and have my finger on the trigger in order to buy or sell at a moments notice.

This strategy has yielded great results for me but I concede it's highly risky, undiversified and prone to liquidity risks should a serious catalyst affect either the market or the stock in play.

That being said as of late i'm now beginning to be completely spooked by what i'm seeing globally as there are now unprecedented amounts of central bank liquidity (aka credit/debt) in the global banking system, and various countries have now moved to negative interest rates in order to discourage saving and encourage consumption. In addition to all this we have declining commodity prices, large US corporates stockpiling cash, declining GDP in China, and persistent issues in Europe and giant Multi-national banks that have continued to consilidate and which are now 30% bigger than when they were last deemed 'too big to fail'.

It seems that the central bankers are running out of tools in their arsenal and their present strategies (QE and interest rate reductions) are of diminishing effectiveness. All this leads me to believe that we may not be far off from a second GFC and if you follow systems theory then GFC II may be more akin to WW2 than WW1 in terms of total economic damage as there is an even greater amount of inter-dependence (and thus fragility) in today's financial eco-system.

[percy]

No answers sorry.
Two approaches to investing;
1] Don't put all your eggs in one basket.
2]Put all your eggs into one [or two] basket and watch it very carefully.
I would think if you are under 50 years of age and know what you are doing the second option is not silly.What really set me up, was having about half of my portfolio in SCY in about 1991.I think I knew just about as much about the business as the directors.!!
"Completely spooked by what you see globally".Yes it is frightening.I am on the road every Friday.Places like Oamaru,Timaru etc.A lot more traffic than last year.NZ oldies in camper vans,Tourists in rental vans and cars.No vacancy signs on ever motel.Gas stations flat out.Eateries flat out,tourist shops flat out.So where is NZ Ltd going?.Low interest rates,lower petrol prices,lower NZ $ means really NZ Ltd is in great shape.Exporters are in great shape.The tourism sector is in great shape.The retirement sector is in great shape.Are there fewer cars on Auckland roads?Will tourism end soon? Will exporters stop exporting?Will people stop getting older? Will Aucklanders stay at home?
However I am watching my portfolio very carefully.Any stock that is not performing or has a positive outlook is gone.
I think I would also beat most people to the exit door should NZ Ltd's outlook change.
I would expect I will have to liquidate a big % of my portfolio should interest rates start to move up.At present time that looks very unlikely.

[h2so4]

I have enjoyed living in Fairyland for the past 3 or 4 years.
In this year's ST NZ competition I picked my 5 largest holdings.
Life in Fairyland continues, with me being in 6th place being up 16.84%.[in 3 months]
Maybe I have just invested in the right stocks?
Yet I still feel I remain "well positioned."

I like Percy's strategy best.
He uses share selection and portfolio allocation to produce a very satisfactory return. Look Lew there is even enough to take 5or 6% capital gain as income and still grow the portfolio......but why would he? He has no need to as his personal finances are in order, dividends are rolling in and his share portfolio keeps compounding.
There is a lot to learn from Percy. I admire his skill and humble approach to investing.

Market crashes.
My bet is it won't affect Percy. No doubt he will still own some excellent businesses that would recover or not decrease as much as most shares. His finances will still be in order and he will still be receiving income from dividends and other sources.
Buffet's reply to market crashes.....stop trying to predict the direction of markets that's for the gamblers.

[tim23]

Hi - its straw hats in winter stuff easy said hard to do, in the August meltdown TME could be bought for $3 and SPK for under $3 both had excellent results and despite market bounced nicely - good quality companies with reliable earnings.

[LAC]

I am loving this thread. It's great to hear how people approach investing. I have taken the approach that researching the company as much as you can before looking at the share price is a must! I made a heap of mistakes picking the wrong stocks run by the wrong people and now with a somewhat better understanding I try and pick better companies which generally arent at a bargain price but there's a reason for that....they are good businesses. I am in it for the long run so I try not to sell too fast and enjoy growing dividends. And like Percy said buy a stock with the intention of never selling:)

[limmy]

I am loving this thread. It's great to hear how people approach investing. I have taken the approach that researching the company as much as you can before looking at the share price is a must! I made a heap of mistakes picking the wrong stocks run by the wrong people and now with a somewhat better understanding I try and pick better companies which generally arent at a bargain price but there's a reason for that....they are good businesses. I am in it for the long run so I try not to sell too fast and enjoy growing dividends. And like Percy said buy a stock with the intention of never selling:)
Buy and hold is the way to go. - For good dividend paying stocks.

[voltage]

very wise words. To succeed like Percy you must be proactive at all times. If this does not suit you, or you do not have the inclination or time or temperament be like Mr Average and buy index funds. There is nothing wrong with this. Most fund managers cannot outperform Mr Average year after year.

[couta1]

very wise words. To succeed like Percy you must be proactive at all times. If this does not suit you, or you do not have the inclination or time or temperament be like Mr Average and buy index funds. There is nothing wrong with this. Most fund managers cannot outperform Mr Average year after year. Do what suits your personality type I say, there's many roads to ultimate success, Percy's style of investing does not require the same degree of proactivity as that of a more trader orientated kinda person, it's more toward the spray and walk away end of the spectrum, I always remember something Harvey Specter quoted on a post a couple of years ago, that was something along the lines of " If you can move volume all things are possible" :cool:

[percy]

I do try to buy with the view of never selling.
Makes you more selective in what you buy.
Yet nothing stays the same.If a company comes out with a better than expected result I add to my holding.Yet if a company disappoints [SKL,IQE] I sell straight away,regardless of what I paid for those shares.
Last year I altered my portfolio a lot.Out went Cavotec,Tru-test,Rural Equities and PGW.Reason for selling was very low eps growth for each of them.
I received a lot of help from Noodles, who had the foresight to fully understand what a falling NZ $ would mean to a number of companies.That meant I added AWK,CVT, SEK,SCL, and TIL.

[voltage]

thanks Percy, but to crunch the numbers from company reports does require an analytical mind with accounting skills. Fund managers employ analysts full time to do this, so how can an individual investor really have an edge.

[King1212]

thanks Percy, but to crunch the numbers from company reports does require an analytical mind with accounting skills. Fund managers employ analysts full time to do this, so how can an individual investor really have an edge.

Gut feeling..:D

[percy]

thanks Percy, but to crunch the numbers from company reports does require an analytical mind with accounting skills. Fund managers employ analysts full time to do this, so how can an individual investor really have an edge.

Being "around the block" a good many times more than most analysts gives you "an edge".
I read analyst research from about four brokers.Some are excellent,some are good and some are poor.You will note the first broker in this years competition is Craig's at number 48.
Crunching numbers is not too hard.You can see whether current assets exceed current liabilities.
You can work out whether eps are increasing.
You can see the statement of cash flow.You can work out equity ratios.
Really any one who has had their own business knows what to look for in a set of accounts.
Not rocket science,just a snap shot of a business on a certain day.

[noodles]

thanks Percy, but to crunch the numbers from company reports does require an analytical mind with accounting skills. Fund managers employ analysts full time to do this, so how can an individual investor really have an edge.
That is so true. But fund managers and analysts only crunch the numbers of the large caps. My edge is following the small caps. This is where you can find bargains and multi-baggers.

[h2so4]

thanks Percy, but to crunch the numbers from company reports does require an analytical mind with accounting skills. Fund managers employ analysts full time to do this, so how can an individual investor really have an edge.

An individual investor doesn't have an edge. No way can he compete with fund managers. These guys live and breath the markets but an individual investors goals are different. He just wants a comfy retirement, money to do what he wants with. So we don't need to play the game they do. We are not trying to beat the markets or shift millions of dollars in and out of shares to make returns to pay huge salaries. It's just a careful selective process to earn a satisfactory return with minimal risk and there are many different ways to achieve that doesn't even have to be shares.

[Lewylewylewy]

We do have an edge on find managers, the must adhere to rules when investing.

[h2so4]

We do have an edge on find managers, the must adhere to rules when investing.

Yeah thats the flip side Lew. We dont have the resources to compete against them but we are not playing their game so no rules or portfolio limits.

[percy]

We do have one HUGE edge over fund managers, and that is the size of our holdings in any company.
Wanting to buy/sell our [small] positions is easy and quick,while a fund manager may have to do it or a number of months.
On Thursday there were just over 50,000 TIL traded and under 20,000 AWK traded.
I also wonder whether a fund can react to an announcement as quickly as us.

[Lewylewylewy]

Agreed, buying or selling large numbers means getting the worst price

[James108]

A good line I heard is, "try and be the smartest guy in an empty room"

[skid]

Being "around the block" a good many times more than most analysts gives you "an edge".
I read analyst research from about four brokers.Some are excellent,some are good and some are poor.You will note the first broker in this years competition is Craig's at number 48.
Crunching numbers is not too hard.You can see whether current assets exceed current liabilities.
You can work out whether eps are increasing.
You can see the statement of cash flow.You can work out equity ratios.
Really any one who has had their own business knows what to look for in a set of accounts.
Not rocket science,just a snap shot of a business on a certain day.

Which brings to mind the fact that a good dividend payer is not enough--the company must have good earnings as well---In the USA they are starting to go through a stage where many good div. blue chips are having disappointing earnings--something will have to give and as a result investors are starting to rethink the high div ,blue chips. Dividends can drop when a co. falters(its not a term deposit) so the ''buy and hold'' must be reviewed as stated by Percy.
The NZX is in better shape IMO but lessons can be learned by other markets.

[iceman]

This is a really interesting discussion.
For me though, it all depends on our individual circumstances and what we are trying to achieve. A 20something year old, of which I am very pleased to see we have quite a few here, has a very different set of requirements to me as a 50 YO or people like my friend Percy who is older.
I would like to give a personal example.

After a divorce 18 years ago, my former wife and I left a bach to our 2 small daughters. About 5 years ago we decided to sell it and I was given the responsibility to invest their money. I put half into the NZX.
But for the last 4 years, I have invested their money totally differently. The older daughter is now at her last year at Uni and I still hold a majority of her shares in growth companies. She decided to study in her home town living with her mother. I have reinvested all her dividends except what I have put into her Kiwisaver to get the maximum Government contribution since she turned 18, 2,5 years ago. Her portfolio is up 135% in 5 years.

My younger daughter is at first year at Uni and has had to go away, as we knew/expected 3-4 years ago. So I've invested her money in high and regular dividend paying stocks. Her portfolio is up 75% in 5 years, but her dividends over those years are paying for her accommodation costs at Uni. They will also be paying for her minimum Kiwisaver contribution (to get Government free cash) since she turned 18, less that a year ago.

I am also pleased to say that both of them are slowly showing more interest in their portfolios and I am hoping to hand it over to them by the time they finish Uni.

So my point here is different strokes for different folks.

[fungus pudding]

This is a really interesting discussion.
For me though, it all depends on our individual circumstances and what we are trying to achieve. A 20something year old, of which I am very pleased to see we have quite a few here, has a very different set of requirements to me as a 50 YO or people like my friend Percy who is older.
I would like to give a personal example.

After a divorce 18 years ago, my former wife and I left a bach to our 2 small daughters. About 5 years ago we decided to sell it and I was given the responsibility to invest their money. I put half into the NZX.
But for the last 4 years, I have invested their money totally differently. The older daughter is now at her last year at Uni and I still hold a majority of her shares in growth companies. She decided to study in her home town living with her mother. I have reinvested all her dividends except what I have put into her Kiwisaver to get the maximum Government contribution since she turned 18, 2,5 years ago. Her portfolio is up 135% in 5 years.

My younger daughter is at first year at Uni and has had to go away, as we knew/expected 3-4 years ago. So I've invested her money in high and regular dividend paying stocks. Her portfolio is up 75% in 5 years, but her dividends over those years are paying for her accommodation costs at Uni. They will also be paying for her minimum Kiwisaver contribution (to get Government free cash) since she turned 18, less that a year ago.

I am also pleased to say that both of them are slowly showing more interest in their portfolios and I am hoping to hand it over to them by the time they finish Uni.

So my point here is different strokes for different folks.

Well done, but it doesn't tell us much. What would have been the effect of reinvesting the divvies of the younger one who is only up 75%? Obviously compounding as with oldest daughter adds a huge amount to any portfolio, but you could have reinvested the divvies for the younger one. In other words, could you not have bought the same for each daughter and done just as well. One daughter reinvesting - the other spending? I can't see why you invested totally differently as you state.

[percy]

Sage advice as usual Iceman.
What I have found interesting is how my portfolio is made up.
Instead of having a pensioner's mainly fixed interest portfolio, which I thought I would have now, being 67 I have a very mixed portfolio.
Maybe because the market is my hobbie, am still working, and the wife and I am receiving a pension.I have my core type stocks,AIA,EBO,HBL,FPH,MEL,RYM and SUM.
Then I have my more aggressive stocks,AIR,AWK,CVT,RBD,SCL,SEK,TIL and TNR.
Then I have [at a guess 12% to 20%] very aggressive Aussie small caps.Very little in a lot of companies.
At the present time I think I could liquidate 80% of my portfolio in a day.Instead of carrying about 50% cash I only run well under 10%.
I have not carried any debt for over 25 years.

[King1212]

Sage advice as usual Iceman.
What I have found interesting is how my portfolio is made up.
Instead of having a pensioner's mainly fixed interest portfolio, which I thought I would have now, being 67 I have a very mixed portfolio.
Maybe because the market is my hobbie, am still working, and the wife and I am receiving a pension.I have my core type stocks,AIA,EBO,HBL,FPH,MEL,RYM and SUM.
Then I have my more aggressive stocks,AIR,AWK,CVT,RBD,SCL,SEK,TIL and TNR.
Then I have [at a guess 12% to 20%] very aggressive Aussie small caps.Very little in a lot of companies.
At the present time I think I could liquidate 80% of my portfolio in a day.Instead of carrying about 50% cash I only run well under 10%.
I have not carried any debt for over 25 years.

bravo Percy! Wonder your Ozzie portfolio doing well or not. Do u mind to share your Ozzie small cap companies since u are such a legend?

[percy]

bravo Percy! Wonder your Ozzie portfolio doing well or not. Do u mind to share your Ozzie small cap companies since u are such a legend?

The odd one going really well,CGS and GMM at present.
Small caps;AB1,AQZ,BGD,CGS,CNW,,JKL,KME,LBL,MSP,PGC [ largest] ,RFT,RGP,RNT,,RXP,TNK.
Oil and miners,and mining services;AJQ,DGR,GMM.OEL, HBX,RUM,SPQ,SXY [ brought last week].

[King1212]

The odd one going really well,CGS and GMM at present.
Small caps;AB1,AQZ,BGD,CGS,CNW,,JKL,KME,LBL,MSP,PGC [ largest] ,RFT,RGP,RNT,,RXP,TNK.
Oil and miners,and mining services;AJQ,DGR,GMM.OEL, HBX,RUM,SPQ,SXY [ brought last week].

Ehmmmm...I just looked at all of the companies. some of them, very interesting sectors. However, I guess u can afford to lose your money if the companies went into burst, since u have huge regular dividends from your other good 80% portfolio?

[winner69]

Ehmmmm...I just looked at all of the companies. some of them, very interesting sectors. However, I guess u can afford to lose your money if the companies went into burst, since u have huge regular dividends from your other good 80% portfolio?

I think percy fully expects some to be dungers ......but many will be multi baggers

Should really leave it up to percy to explain how such a strategy makes money though

[Beagle]

I'm relatively new at share trading/investing, and while i find it relatively easy to pick winners and trends, my approach to formulating a consistent strategy is immature.

I was intrigued by something fungus pudding suggested to me about developing a portfolio of reits, which I could accumulate over time to use as an income source. I really liked the idea of this, but am concerned about the natural ebbs in the share market.

So I decided to develop a portfolio of about $50k in which I could invest to accumulate to about $150k in order to develop a dividend income with which to boulster my retirement income. This would support my super and rental income from an additional property I own.

My problem is that I'm 34 years old, and statistically speaking, I'm almost certainly due at least one massive market crash in my life.

My nature is such that I love the idea of a passive income, but feel like there's no such thing. Am I asking for trouble investing in reits then burying my head in the nice, warm sand?

Perhaps if be better off sticking to a highly mobile portfolio that I can use to generate money to buy rental property?

I'd love to hear the opinions of some investors who've weathered market storms such as those in 1987 and 2008. Particularly Percy, if you would be willing to share?

I own GMT and ARG Reit's. They offer a stable reliable income of about 5.1% net return at present and are both PIE's Portfolio Investment Entities so individual taxpayers pay no further tax.
For people on the top tax rate of 33% this translates to approx. 7.5% gross return which I believe will be increasingly attractive as this year progresses with ever decreasing interest rates.

The Government change to the depreciation rules, (which I disagree with) disallowing depreciation on buildings affected their pay-out several years ago and affects how efficient it is from a tax perspective to own property generally as I'm sure you know.

The forward prognosis for REIT's is fairly good with the likelihood of further reductions in the cap rate for valuations..(what other alternative is there for central banks to banish the effects of the GFC other than ultra low interest rates for the foreseeable future), so I expect further increases in the net tangible asset backing of REIT's next year on top of recent ones announced to the market by many of them.

REIT's are by and large a pretty good set and forget investment in my opinion and a worthwhile addition to a growth portfolio for anyone looking for stable income that will generally keep pace with inflation.

Residential rental property yields look stretched, (low) to me especially in Auckland.

Mix REIT's up with some good growth shares like SUM and SCL and you'll be well on your way to building a good reliable supplementary income towards your retirement.

One final thought. Enjoy your youth and your wealth throughout life's journey...take a balanced approach in all things as you never know how long you've got and you can't take your money with you when you go !

[Fisherking]

I own GMT and ARG Reit's. They offer a stable reliable income of about 5.1% net return at present and are both PIE's Portfolio Investment Entities so individual taxpayers pay no further tax.
For people on the top tax rate of 33% this translates to approx. 7.5% gross return which I believe will be increasingly attractive as this year progresses with ever decreasing interest rates.

The Government change to the depreciation rules, (which I disagree with) disallowing depreciation on buildings affected their pay-out several years ago and affects how efficient it is from a tax perspective to own property generally as I'm sure you know.

The forward prognosis for REIT's is fairly good with the likelihood of further reductions in the cap rate for valuations..(what other alternative is there for central banks to banish the effects of the GFC other than ultra low interest rates for the foreseeable future), so I expect further increases in the net tangible asset backing of REIT's next year on top of recent ones announced to the market by many of them.

REIT's are by and large a pretty good set and forget investment in my opinion and a worthwhile addition to a growth portfolio for anyone looking for stable income that will generally keep pace with inflation.

Residential rental property yields look stretched, (low) to me especially in Auckland.

Mix REIT's up with some good growth shares like SUM and SCL and you'll be well on your way to building a good reliable supplementary income towards your retirement.

One final thought. Enjoy your youth and your wealth throughout life's journey...take a balanced approach in all things as you never know how long you've got and you can't take your money with you when you go !

I don't hold ARG so just skimmed the article, but from what i read i understand they have lost their PIE entity.

[fungus pudding]

I don't hold ARG so just skimmed the article, but from what i read i understand they have lost their PIE entity.

I think you're referring to Augusta who lost PIE status, not Argosy.

[percy]

I think percy fully expects some to be dungers ......but many will be multi baggers

Should really leave it up to percy to explain how such a strategy makes money though

Forgot SEQ and TFL.
The Aussie small cap portfolio contains companies with potential huge eps growth,and a couple of backdoor listings with proven directors..
AQZ is a bit different.I expect the purchase of the Fokker aircraft from Austrian Airlines will support AQZ fleet for 10 years, and provide earnings from leases of aircraft and spare parts sales.
Over the past 5 or 6 years I have enjoyed huge success in this sector.From memory MNF went from 17 cents to $1.35 [today $3.39.don't sell winners] CAJ went from 4 cents to about 42 cents when I sold ,then up to over 80 cents.Today 12cents. PRO went from 68 cents to when I sold $1.63,today $1.85.AZV went from 4 cents to 38 cents when I sold ,then up further,back to 8 cents today.INA 7.5 cents to 42 cents.
Not many failures,but a great number of winners.

[voltage]

very interesting thread. Percy would would you do to your portfolio once interest rates rise, will this make property trusts and other dividend stock decrease in value?

[fungus pudding]

very interesting thread. Percy would would you do to your portfolio once interest rates rise, will this make property trusts and other dividend stock decrease in value?

Interest rates and property prices are the opposite ends if a see-saw.

[King1212]

Forgot SEQ and TFL.
The Aussie small cap portfolio contains companies with potential huge eps growth,and a couple of backdoor listings with proven directors..
AQZ is a bit different.I expect the purchase of the Fokker aircraft from Austrian Airlines will support AQZ fleet for 10 years, and provide earnings from leases of aircraft and spare parts sales.
Over the past 5 or 6 years I have enjoyed huge success in this sector.From memory MNF went from 17 cents to $1.35 [today $3.39.don't sell winners] CAJ went from 4 cents to about 42 cents when I sold ,then up to over 80 cents.Today 12cents. PRO went from 68 cents to when I sold $1.63,today $1.85.AZV went from 4 cents to 38 cents when I sold ,then up further,back to 8 cents today.INA 7.5 cents to 42 cents.
Not many failures,but a great number of winners.

U r such a legend Percy. I would so the same if I did have 7 figures portfolio. Unfortunately, I have limited capital which cap to 30% share 70% cash. Otherwise, my wife will kill me:scared:

[percy]

very interesting thread. Percy would would you do to your portfolio once interest rates rise, will this make property trusts and other dividend stock decrease in value?

This is something I often think about .
Post #43 on this thread;"I would expect I will have to liquidate a big % of my portfolio should interest rates start to move up.At present time that looks very unlikely."
Another post I stated I thought I would be able to sell approx. 80% of my portfolio in a day.
Yes dividend stocks will decrease,however higher interest rates and higher inflation usually work in property companies favour,odd though it may seem.
What will be interesting will be HBL.At present time the dividend may be driving the sp,however higher interest rates also work in banks' favour.

[percy]

U r such a legend Percy. I would so the same if I did have 7 figures portfolio. Unfortunately, I have limited capital which cap to 30% share 70% cash. Otherwise, my wife will kill me:scared:

Every time we have a big down turn,my wife asks me are we going to lose all our money again this time.!!!
A few days later she hears company X is paying an increased dividend,"I have them don't I"?."Yes dear".!!!!!!!!!!!!!!!
I would point out to your wife your shares are in fact a share or part ownership of a company.
When I had a bookshop I had a lot of capital tied up in a very risky business.Today I have invested that capital in a number of businesses run by better businessmen than I am.Simon Challis at RYM,Mark Waller and Patrick Davies at Ebos,Jeff Greenslade at HBL, Andy Borland at SCL,Chris Luxon at AIR.
So try to sell a risky bookshop.Can't be done in a day.So which is the bigger risk?Investing in your own booshop,or investing in a number of well run businesses?
So back to your wife.Put a few big divie payers in her name.!!

[Sideshow Bob]

Once again Percy, some very sage words. Thanks. :)

[King1212]

Every time we have a big down turn,my wife asks me are we going to lose all our money again this time.!!!
A few days later she hears company X is paying an increased dividend,"I have them don't I"?."Yes dear".!!!!!!!!!!!!!!!
I would point out to your wife your shares are in fact a share or part ownership of a company.
When I had a bookshop I had a lot of capital tied up in a very risky business.Today I have invested that capital in a number of businesses run by better businessmen than I am.Simon Challis at RYM,Mark Waller and Patrick Davies at Ebos,Jeff Greenslade at HBL, Andy Borland at SCL,Chris Luxon at AIR.
So try to sell a risky bookshop.Can't be done in a day.So which is the bigger risk?Investing in your own booshop,or investing in a number of well run businesses?
So back to your wife.Put a few big divie payers in her name.!!

Yeah...definitely Percy. However I can not put all my cash in now. We are slowly building our portfolio. We put aside some money ready weekly in bonus bond which is very liquid. once accumulate a decent amount, I will search and buy a bargain stock. Mind u, I invested almost 5 years in managed funds, just decided to cash in n manage it by ourself. I like research and reading business sections since I was young. I found share market very interesting. I wrote down some of your ASX small caps. Some of them really interested me.

AB1 most of young generation will have phones and most of them are addicted with game.

PGC human will go through 3 things, birth, sickness and death. So paragon care will continuously supplying the products.

RGP Due to over mining exploration in Ozzie, demand of water will be rapidly needed.

RNT ehmmm very interesting.....

thanks for sharing......

[percy]

King1212.
PGC.Attracted to this company because of the success I have had with Ebos in NZ.
Really starting to build a portfolio, I would think you may pay to consider some boring NZ stocks, which pay fully imputated divies first of all.Get off to a sound footing.My Aussie stocks are not for the faint hearted.Extremely risky.
I am thinking of the likes of MEL or other power companies.Then put in a retirement sector company such as RYM or SUM,then possibly an exporter such as SCL or TIL.Ask you wife's advice on TIL.Then you could look at the likes of RBD and HBL.
I started off investing about $500 or so in companies.

[RGR367]

U r such a legend Percy. I would so the same if I did have 7 figures portfolio. Unfortunately, I have limited capital which cap to 30% share 70% cash. Otherwise, my wife will kill me:scared:

Limited capital is not a hindrance to get your portfolio to that 7 digit portfolio. I'm not sure how others did it but saving first to be able to buy shares would take a lot of time.It really gets harder after getting into that 200K or so bracket of buying and selling using your own money. Put OPM (other people's money) to work as they say if you're sure as per analysis of the share(s). I would have not done it without margin lending. So you leverage your buying and/or accumulation like in property and make being "invested" as your business.

[Sideshow Bob]

A few pearls in line with this thread

http://www.stuff.co.nz/business/money/78286336/five-pearls-of-wisdom-that-will-change-the-way-you-think-about-money

[King1212]

Limited capital is not a hindrance to get your portfolio to that 7 digit portfolio. I'm not sure how others did it but saving first to be able to buy shares would take a lot of time.It really gets harder after getting into that 200K or so bracket of buying and selling using your own money. Put OPM (other people's money) to work as they say if you're sure as per analysis of the share(s). I would have not done it without margin lending. So you leverage your buying and/or accumulation like in property and make being "invested" as your business.

no way! I would never do that. Borrowing to invest in the share market...anyone else doing it?

[bohemian]

Yes. In two ways. Holding back in paying off principal on a mortgage for a rental property and secondly by having a leveraged share account. There is also a tax benefit in doing this.

[Sideshow Bob]

no way! I would never do that. Borrowing to invest in the share market...anyone else doing it?

There will be ST'ers out there with margin lending accounts - and various parties will lend on prescribed shares at various levels.

[iceman]

Well done, but it doesn't tell us much. What would have been the effect of reinvesting the divvies of the younger one who is only up 75%? Obviously compounding as with oldest daughter adds a huge amount to any portfolio, but you could have reinvested the divvies for the younger one. In other words, could you not have bought the same for each daughter and done just as well. One daughter reinvesting - the other spending? I can't see why you invested totally differently as you state.

Simply because one needed cash and the other didn't.

[Whipmoney]

no way! I would never do that. Borrowing to invest in the share market...anyone else doing it?

I borrowed about 90% of my invested capital at cheap rates. Worked well to gain scale / generated leveraged returns.

Would never do margin lending though as the lender can insist on a margin call, which usually happens when you need it the least.

Using headroom in your home loan could be a viable strategy if you can achieve greater returns than the current (low) interest rates.

[King1212]

I borrowed about 90% of my invested capital at cheap rates. Worked well to gain scale / generated leveraged returns.

Would never do margin lending though as the lender can insist on a margin call, which usually happens when you need it the least.

Using headroom in your home loan could be a viable strategy if you can achieve greater returns than the current (low) interest rates.

I learnt a different way. Being told all the time, only invest with the money which u could afford to lose. What happen when the market crashed or u made a poor decession? U will be in huge debts?

[fungus pudding]

Simply because one needed cash and the other didn't.
I understand that, but my question is - would the fund that grew 75% have been better or worse than the other fund if the dividends had been reinvested?

[LAC]

no way! I would never do that. Borrowing to invest in the share market...anyone else doing it?

I am with you on that one. But I think there was a thread on ST which members posted the pros and cons and there are a few on here that have taken debt to put into their investments. (worked out well for some) I think the only way I would consider is if I get a low rate loan based on my rental portfolio (I would like to keep that as highly leveraged as possible) so instead of paying off the mortgage with the extra cash per month I would take a low interest loan and invest that in the sharemarket.
But I still prefer not taking debt to play in the Sharemarket.....

[Markymarknz]

Every Tom, Dick and Harry leverages themselves into rental properties - even most well they are still trying to pay off their primary mortgage. Would applying the same technique to a well diversified, dividend earning share portfolio not be at worst around the same level of risk, possibly less risky due to diversification and quality of asset?

You are susceptible to a market correction using either strategy right? Its often mentioned that you risk amplifying your losses when leveraging into the sharemarket, but all those rental property owners face the same consequence if a property market correction were to occur, yet everyone treats it like it is just a normal thing...

[iceman]

I understand that, but my question is - would the fund that grew 75% have been better or worse than the other fund if the dividends had been reinvested?

Sorry misunderstood your question FP. I have not worked that out exactly but sure the dividend paying portfolio would not have matched the growth portfolio. But I think the point you are making and is a valid one, is that we have some great companies on the NZX that are well run and steady high dividend payers. Reinvesting the dividends from many of these companies is a relatively low risk and great way to grow your portfolio.

[LAC]

Every Tom, Dick and Harry leverages themselves into rental properties - even most well they are still trying to pay off their primary mortgage. Would applying the same technique to a well diversified, dividend earning share portfolio not be at worst around the same level of risk, possibly less risky due to diversification and quality of asset?

I think it's a personal choice in my case, I have a better understanding on rental property as I have been in it for over a decade yet only about 5 years in shares. I know what to expect in property and yes I do know the risk as well but I think if I had the knowledge of some older investors on ST I would take on debt to put into a well diversified portfolio but I just dont think personally that I am skilled enough (as yet) If you take a general view, if does make sense to take a floating loan and invest to get a 10%+ return as most good investors on here get year in and year out - not sure if I can be that person with my limited knowledge (as yet)
So like you say every Tom Dick and Harry does the rental property thing - I do it because I am comfortable in that part of my portfolio.

[fungus pudding]

Sorry misunderstood your question FP. I have not worked that out exactly but sure the dividend paying portfolio would not have matched the growth portfolio. But I think the point you are making and is a valid one, is that we have some great companies on the NZX that are well run and steady high dividend payers. Reinvesting the dividends from many of these companies is a relatively low risk and great way to grow your portfolio.

Thanks. Asking rather than trying to make a point: I have a 7 figure investment spread across 6 LPTs. I get the full benefit of the PIE status. I'm quite happy but friends of mine tell me I should be in growth shares. The growth from my lpts has been fine and the income excellent. Furthermore I know absolutely nothing about the share market, but do know a thing or two about real estate and have absolutely no trouble sleeping at night with my investment. I like bricks and mortar security and with growth compounding at around 4% per year on top of an income, the equivalent of 7.5% taxable (9+% on cost) I wonder how much better I could do with equivalent low risk. So was curious when I see you're on both sides of the fence and also conversant with LPTs. Sort of wondering if I should change my strategy or change my friends. :-)

[JBmurc]

I've had 250k on loan for near on several years invested in the ASX ...being a tax paying trader gave some safety to the leverage ...personal I'd much rather have debt within a company than personally as long as the payments are well meet each month from personal income ....because of the leverage in both property and sharemarket we now have a Debt free 600k house along with other investments..
that wouldn't have happen via saving 10-20k a year and renting etc

But there has been some rough years and I wouldn't recommend to the risk averse ....but for me I was focused on paying off the family home first and taking on debt to continue my trading in the sharemarket..

In hindsight I should have paid off the debt and kept away from the market from 2012-15 but thems the breaks ...still 2015-16 looking much better and will be paying off 100k of the outstanding loan end of april ...

[BIRMANBOY]

You appear to be making the assumption that if you have skill and knowledge of the share market its a foregone conclusion that you can get 10% return year in and out. If only this was the case.....:cool: Unfortunately the market doesn't move in a foreseeable and predictable fashion. Even if one did have the aforementioned skill and knowledge that will offer very little protection if a crash or sustained correction occurs, or heaven forbid you make a bad choice . Whilst I'm sure there will be some investors getting your proverbial 10% per year they will in all probability be heavily outnumbered by the rest of us schmucks. Just because someone will win lotto doesn't mean its logically attainable. Property in NZ has been steadily climbing year after year after year. Will it collapse...maybe when supply outnumbers demand but that's looking extremely unlikely. Now look at the roller coaster we have with the share market. If you could guarantee the continuation of the share market upwards it would be a no-brainer to borrow to invest...can you guarantee that? No would be the obvious answer.
I think it's a person choice in my case, I have a better understanding on rental property as I have been in it for over a decade yet only about 5 years in shares. I know what to expect in property and yes I do know the risk as well but I think if I had the knowledge of some older investors on ST I would take on debt to put into a well diversified portfolio but I just dont think personally that I am skilled enough (as yet) If you take a general view, if does make sense to take a floating loan and invest to get a 10%+ return as most good investors on here get year in and year out - not sure if I can be that person with my limited knowledge (as yet)
So like you say every Tom Dick and Harry does the rental property thing - I do it because I am comfortable in that part of my portfolio.

[Cricketfan]

I like bricks and mortar security and with growth compounding at around 4% per year on top of an income, the equivalent of 7.5% taxable (9+% on cost) I wonder how much better I could do with equivalent low risk.

That's the key isn't it - how much risk are you willing to live with. If you couldn't live with the risk of your shares dropping in the short term then then stick with what you have. If you don't need the money in the short term and are willing to live with some volatility now and again then maybe have a small portion of your funds in some stocks like SUM, FPH, AIA etc, relatively low risk stocks with potential for decent capital gains and some dividends. Over time they should outperform LPTs by far, but there is the small risk that they won't.

[Whipmoney]

I learnt a different way. Being told all the time, only invest with the money which u could afford to lose. What happen when the market crashed or u made a poor decession? U will be in huge debts?

Well firstly as I had a decent income but small amount of starting capital it was technically still money that I could afford to borrow (and in the worst case, lose).

But in the case of a market crash / depression then I don't think my strategy would be any different. It was an unsecured loan and as such I wouldnt be required to sell the shares unless I lost my job in which case I (and most of the population) would have more pressing problems.

My strategy was to leverage my income up to buy assets (shares) that could gain in value. This is a genuine strategy for building wealth and its not really in anyway dissimilar from taking a home loan out from the bank to buy a house (asset).

[King1212]

Well firstly as I had a decent income but small amount of starting capital it was technically still money that I could afford to borrow (and in the worst case, lose).

But in the case of a market crash / depression then I don't think my strategy would be any different. It was an unsecured loan and as such I wouldnt be required to sell the shares unless I lost my job in which case I (and most of the population) would have more pressing problems.

My strategy was to leverage my income up to buy assets (shares) that could gain in value. This is a genuine strategy for building wealth and its not really in anyway dissimilar from taking a home loan out from the bank to buy a house (asset).

You are of the legends Whipmoney....good luck with your investment. Would u mind to share one or two stock that u think might gain in value in the near future or undervalue?:D Feel free to private massage me:t_up:

[RGR367]

I learnt a different way. Being told all the time, only invest with the money which u could afford to lose. What happen when the market crashed or u made a poor decession? U will be in huge debts?

That's why you DYOR because those shares that you've chosen should better be there still during a downturn. You also need some really good spare money (again using ML) when the market is in turmoil to grab those bargains. Never been "called" on my ML since I kept it well below 70% most of the times.
If you're in the "investing business" then any interest you paid paying any debt is claimable, right? Or you could also be a trader using ML too and claim all your losses. Again, DYOR.

[King1212]

That's why you DYOR because those shares that you've chosen should better be there still during a downturn. You also need some really good spare money (again using ML) when the market is in turmoil to grab those bargains. Never been "called" on my ML since I kept it well below 70% most of the times.
If you're in the "investing business" then any interest you paid paying any debt is claimable, right? Or you could also be a trader using ML too and claim all your losses. Again, DYOR.

Ehm..interesting...thank u for the tip. Anyway what is ML?:mellow:

[LAC]

You appear to be making the assumption that if you have skill and knowledge of the share market its a foregone conclusion that you can get 10% return year in and out. If only this was the case.....:cool: Unfortunately the market doesn't move in a foreseeable and predictable fashion. Even if one did have the aforementioned skill and knowledge that will offer very little protection if a crash or sustained correction occurs, or heaven forbid you make a bad choice . Whilst I'm sure there will be some investors getting your proverbial 10% per year they will in all probability be heavily outnumbered by the rest of us schmucks. Just because someone will win lotto doesn't mean its logically attainable. Property in NZ has been steadily climbing year after year after year. Will it collapse...maybe when supply outnumbers demand but that's looking extremely unlikely. Now look at the roller coaster we have with the share market. If you could guarantee the continuation of the share market upwards it would be a no-brainer to borrow to invest...can you guarantee that? No would be the obvious answer.

I agree with you Birman, all I was suggesting was that I understand the return on Property and I have reasonable understanding on what I expect from it YOY. And I have not been able to do that in the Sharemarket in the last 4-5 years, yet some on ST have done so. So if the bank was to say here take a million bux at 5% interest, I would invest it in property because I know what I am doing in that sector. I would not dare put 1 million in the sharemarket, because its not my comfort zone. I bet there are some on ST who would take the million and put it into shares.... what would you do if you can only choose one (leveraged for property or shares if given a million tomorrow?)

[RGR367]

Ehm..interesting...thank u for the tip. Anyway what is ML?:mellow:

Margin Lending, using your shares as your collateral.

[couta1]

The share market is a completely unpredictable beast, a classic example was when I sold my SCL holding 5 minutes before the last positive announcement, and the share price climbed quickly, at the time it looked topped out in the $2.50s and would have drifted back had it not been for that announcement but what if it had been an announcement on another fruit fly outbreak? ( I'm sure you get the picture) Statistically only 3% of traders make money on the share market (Why is that with all those TA indicators at their disposal) I'm leveraged 15% of my portfolio at 5% interest put on the mortgage which I'm very comfortable with as I could pay it back tomorrow if I had to,plus I gain tax deductible benefits. Claiming imputation credits plus loan interest cuts your tax payable substantially but that's only a good thing if you stick within your comfort zone.

[BIRMANBOY]

Ok you say its not your comfort zone yet you said and I quote, "If you take a general view, if does make sense to take a floating loan and invest to get a 10%+ return as most good investors on here get year in and year out" . So that therefore is coming from a point of non comfort and yet you said it makes sense. I'm confused...as you appear to be so to speak. Not trying to give you a hard time but always a good idea to proof read any posts and make sure there is some continuity and progression. As a property investor you know what you are doing apparently so it makes sense to stick with what you know. I take issue with your THEORY that its a relatively run of the mill situation for knowledgeable and experience investors to be able to produce 10% year after year. if this was the case then the share markets would be awash with investors, nobody would bother with term deposits, the number of small business owners would be halved, fund managers would be guaranteeing 8% and only people who didn't know what they are doing would own multiple properties. So would I take a million bucks as a loan at 5%? No since I cant stand the concept of having to deal with tenants so property is out. Taking a loan to invest in shares is just a hair away from gambling in my opinion. Admittedly this view is probably perceived as a bit old-fashioned but I prefer to think of it as being fiscally conservative and this is unlikely to cause any financial stress. If you have a high paying job where you can quickly recover from a bad situation and it wont put you in the poo..then fine its up to you. Otherwise be careful. But please don't convince yourself or put forth the theory that 10% is a "piece of p**s". That would just be misleading
I agree with you Birman, all I was suggesting was that I understand the return on Property and I have reasonable understanding on what I expect from it YOY. And I have not been able to do that in the Sharemarket in the last 4-5 years, yet some on ST have done so. So if the bank was to say here take a million bux at 5% interest, I would invest it in property because I know what I am doing in that sector. I would not dare put 1 million in the sharemarket, because its not my comfort zone. I bet there are some on ST who would take the million and put it into shares.... what would you do if you can only choose one (leveraged for property or shares if given a million tomorrow?)

[kiora]

That's the key isn't it - how much risk are you willing to live with. If you couldn't live with the risk of your shares dropping in the short term then then stick with what you have. If you don't need the money in the short term and are willing to live with some volatility now and again then maybe have a small portion of your funds in some stocks like SUM, FPH, AIA etc, relatively low risk stocks with potential for decent capital gains and some dividends. Over time they should outperform LPTs by far, but there is the small risk that they won't.

I suspect there is more 'market risk' now compared to where we have come from due to stretched PE's even with these "low risk companies"Maybe not the time to leverage into these particular shares.I would suggest stock picking is more important when PE's are being this stretched.

[percy]

Borrowing money for investments only makes sense if you know, and are experienced in that market, whether it be art,collectables,stamps,vintage cars,property or shares.
For the person who knows what they are doing, it is leverage.Most fortunes are made using leverage.
For personnel reasons I am averse to debt.A health problem in 1987 meant I wanted my wife to have a mortgage free place to live in should I die.
Share market returns are not that predictable.The thread "Where to invest" makes interesting reading.On the 23/9/2015 I listed a portfolio.The objectives were growth of 6% to 8% pa and dividend yields of 3% to 4%.Seemed realistic.No one would be more surprised than me that the growth returns in 6 months are 26.72% PLUS dividends.
Now with out looking up anything which portfolio would you have brought on 1st January this year on margin.
a],RYM,IFT,ANZ,WBC,MFT.
b].AIR,NZR,CVT,CAV,PGW
c]THL,SCL,FPH,SEK,PEB.
On margin I would have gone with a.
Yet portfolio a] is 125th in NZX stock picking contest up 1.04%
b] portfolio is 126th up 1.03%.
and portfolio c] is in first place up a massive 21.40%
Disc I am "well positioned" at 6th up 16.84%.

[voltage]

leverage works well when you have capital growth - tax free gains. This is why it works so well in property over say a 10 year period. Time is money. if there is no capital gain leverage is a waste of time. I do use leverage for shares but limit this to 20% of my portfolio. Percy makes a great point above. it is impossible to predict the optimal portfolio, the best one one year could be the worst the next year. Imagine using leverage to buy BHP over the last few years. I have used leverage for the aussie banks 15 years ago and have done well. I have found companies that increase there dividends year after year meaning the company is growing are ideal for leverage. The problem is to identify these companies. To reduce stock specific risk perhaps borrow against an index, eg smartshares have 2 suitable ones - NZ Dividend DIV (http://smartshares.co.nz/types-of-funds/smartdividend/nz-dividend) or NZ CORE EQUITY TRUST (http://smartshares.co.nz/images/uploads/DFA%20FACT%20SHEET%20Template%20Q4.pdf)

[BIRMANBOY]

So which of those 7 "markets" is different than all the others? If you cannot see that shares is the odd one out then let me try and point out the differences.
(1) shares will go up and down regardless of how much you "know" about the company and irrespective of how well you "understand" the sector.
(2) investments in art, c, s, vc, p. (hereafter called others). can be hung on the wall, looked through in albums, polished in the garage and exchanged and admired between other collectors.
(3) investment in "others" is usually accompanied with some provenance, history and searchable database that can be made sense of as opposed to trying to figure out where your share is now as to where it might be next year, or next month.
(4) they are not making any more penny blacks or gull wing classic Mercedes now so you are more likely to have a quantifiable and known collector base. With shares anyone could dump hundreds of thousands tomorrow or the company might decide to issue more to fund expansion and you find yourself forced to buy more. In other words complete lack of control when you are a tiny cog in a huge shareholder base.
(5) others (apart from property) are predominantly bought for enjoyment. Shares can bring enjoyment too...if you're lucky but inevitably every shareholder will run into times when enjoyment is lacking and stress is front and centre.
So this is why you cant lump shares in with these others. Also take issue with your statement, "most fortunes are made using leverage". That's easy to say and hard to prove and has nothing to back it up and if I said "most fortunes are made through hard work and being good at what you do" that's just as valid or as invalid. Ultimately unproductive as well as being not particularly useful since a "fortune"' means different things to different people.
Borrowing money for investments only makes sense if you know, and are experienced in that market, whether it be art,collectables,stamps,vintage cars,property or shares.
For the person who knows what they are doing, it is leverage.Most fortunes are made using leverage.
For personnel reasons I am averse to debt.A health problem in 1987 meant I wanted my wife to have a mortgage free place to live in should I die.
Share market returns are not that predictable.The thread "Where to invest" makes interesting reading.On the 23/9/2015 I listed a portfolio.The objectives were growth of 6% to 8% pa and dividend yields of 3% to 4%.Seemed realistic.No one would be more surprised than me that the growth returns in 6 months are 26.72% PLUS dividends.
Now with out looking up anything which portfolio would you have brought on 1st January this year on margin.
a],RYM,IFT,ANZ,WBC,MFT.
b].AIR,NZR,CVT,CAV,PGW
c]THL,SCL,FPH,SEK,PEB.
On margin I would have gone with a.
Yet portfolio a] is 125th in NZX stock picking contest up 1.04%
b] portfolio is 126th up 1.03%.
and portfolio c] is in first place up a massive 21.40%
Disc I am "well positioned" at 6th up 16.84%.

[percy]

So which of those 7 "markets" is different than all the others? If you cannot see that shares is the odd one out then let me try and point out the differences.
(1) shares will go up and down regardless of how much you "know" about the company and irrespective of how well you "understand" the sector.
(2) investments in art, c, s, vc, p. (hereafter called others). can be hung on the wall, looked through in albums, polished in the garage and exchanged and admired between other collectors.
(3) investment in "others" is usually accompanied with some provenance, history and searchable database that can be made sense of as opposed to trying to figure out where your share is now as to where it might be next year, or next month.
(4) they are not making any more penny blacks or gull wing classic Mercedes now so you are more likely to have a quantifiable and known collector base. With shares anyone could dump hundreds of thousands tomorrow or the company might decide to issue more to fund expansion and you find yourself forced to buy more. In other words complete lack of control when you are a tiny cog in a huge shareholder base.
(5) others (apart from property) are predominantly bought for enjoyment. Shares can bring enjoyment too...if you're lucky but inevitably every shareholder will run into times when enjoyment is lacking and stress is front and centre.
So this is why you cant lump shares in with these others. Also take issue with your statement, "most fortunes are made using leverage". That's easy to say and hard to prove and has nothing to back it up and if I said "most fortunes are made through hard work and being good at what you do" that's just as valid or as invalid. Ultimately unproductive as well as being not particularly useful since a "fortune"' means different things to different people.

I disagree with every point you have tried to make.

[winner69]

Birman - this a good investing class - time means everything

http://www.stuff.co.nz/motoring/customs-classics/78277845/rusting-unwarranted-57-kombi-van-sells-on-trade-me-for-46000

[Lewylewylewy]

I've said it before, but Lego is the way to go lol

http://www.telegraph.co.uk/investing/shares/lego-a-better-investment-than-shares-and-gold/

[King1212]

I've said it before, but Lego is the way to go lol

http://www.telegraph.co.uk/investing/shares/lego-a-better-investment-than-shares-and-gold/

Ahah...my son has quite a bit of Lego set. Maybe he will do well if he keeps his Lego sets:t_up:

[BIRMANBOY]

LOL Nice to see such a substantive rebuttal there Percy.:p
I disagree with every point you have tried to make.

[BIRMANBOY]

I hope they put some better cushioning in the seats. I remember a one stop 15 hour drive from Sao Paulo to Iguassu Falls in the 70's. Took me weeks to recover.
Birman - this a good investing class - time means everything

http://www.stuff.co.nz/motoring/customs-classics/78277845/rusting-unwarranted-57-kombi-van-sells-on-trade-me-for-46000

[LAC]

Ok you say its not your comfort zone yet you said and I quote, "If you take a general view, if does make sense to take a floating loan and invest to get a 10%+ return as most good investors on here get year in and year out" . So that therefore is coming from a point of non comfort and yet you said it makes sense. I'm confused...as you appear to be so to speak. Not trying to give you a hard time but always a good idea to proof read any posts and make sure there is some continuity and progression. As a property investor you know what you are doing apparently so it makes sense to stick with what you know. I take issue with your THEORY that its a relatively run of the mill situation for knowledgeable and experience investors to be able to produce 10% year after year. if this was the case then the share markets would be awash with investors, nobody would bother with term deposits, the number of small business owners would be halved, fund managers would be guaranteeing 8% and only people who didn't know what they are doing would own multiple properties. So would I take a million bucks as a loan at 5%? No since I cant stand the concept of having to deal with tenants so property is out. Taking a loan to invest in shares is just a hair away from gambling in my opinion. Admittedly this view is probably perceived as a bit old-fashioned but I prefer to think of it as being fiscally conservative and this is unlikely to cause any financial stress. If you have a high paying job where you can quickly recover from a bad situation and it wont put you in the poo..then fine its up to you. Otherwise be careful. But please don't convince yourself or put forth the theory that 10% is a "piece of p**s". That would just be misleading

I am confused sorry....
Taking a loan to invest in shares = not me, because I cant get 10%+ (not my comfort zone)
Taking a loan to invest in property = me, I have and can get 10%+ (my comfort zone)

If ANYONE on ST that has been getting 10%+ return on their shares and are sure they can get that in future = take a loan at 5% to get your 10%+ return (not MY comfort zone)

[Lewylewylewy]

As a 30 something year old, it's interesting to do a spreadsheet to o show where your various investments will be at in 20-30 years time. It's interesting to see the effect of borrowing a little against your house (@4.3% interest, currently) and dumping that into an alternative such as shares.

Also, diversification of investment is important to me. Imagine if in the future, one of the people that knows what they're doing, decides to change the rules around renting property, accidentally making rentals just break even, causing an exodus from property and sending process crashing. Suddenly your investments worth nothing and you can't get your income return.

I do, however agree that property is the best investment. Also, you can use shares to generate money for a deposit, if that's your bag.

[Beagle]

Thanks. Asking rather than trying to make a point: I have a 7 figure investment spread across 6 LPTs. I get the full benefit of the PIE status. I'm quite happy but friends of mine tell me I should be in growth shares. The growth from my lpts has been fine and the income excellent. Furthermore I know absolutely nothing about the share market, but do know a thing or two about real estate and have absolutely no trouble sleeping at night with my investment. I like bricks and mortar security and with growth compounding at around 4% per year on top of an income, the equivalent of 7.5% taxable (9+% on cost) I wonder how much better I could do with equivalent low risk. So was curious when I see you're on both sides of the fence and also conversant with LPTs. Sort of wondering if I should change my strategy or change my friends. :-)

Some of the wealthiest people I know have most of their assets in commercial property. I agree 100% that REIT's are a perfectly fine alternative if you don't want all the hassle of dealing with tenants, maintenance and so on.

[Jantar]

.
If ANYONE on ST that has been getting 10%+ return on their shares and are sure they can get that in future = take a loan at 5% to get your 10%+ return (not MY comfort zone)
Since I re-started investing in the share market almost 3 years ago I have achieved a total return (increased value plus dividends) of almost 48%. On an annual basis that is a return of 18.5% pa.

I have budgeted to continue increasing portfolio value of 6% pa over and above the regular savings I am using to buy more shares. I have also budgeted for a dividend return of 6% after tax, but including imputation credits, until I retire.

I am sort of doing what you suggest, as I am planning on being mortgage free before I retire, but at the current low interest rates, I can see no reason to pay off the little bit of mortgage that still remains any quicker.

[Sgt Pepper]

Can anyone recommend a book on the NZ Sharemarket which is useful. Does not seem to be a lot out there aimed a the novice investor. I have read Martin Hawes. I have always been interested in shares but only have one small shareholding. Perhaps I am too conservative. All our retirement savings ( I am 58) are with the National Provident Fund. Lots of positives, unconditional Government guarantee, minimum earnings rate of 4%, choice of lifetime pension or cash at 65, or a combination of converting 75% into pension and taking 25% as cash. HOWVEVER its returns are usually 5-5.5%

[fungus pudding]

Can anyone recommend a book on the NZ Sharemarket which is useful. Does not seem to be a lot out there aimed a the novice investor. I have read Martin Hawes. I have always been interested in shares but only have one small shareholding. Perhaps I am too conservative. All our retirement savings ( I am 58) are with the National Provident Fund. Lots of positives, unconditional Government guarantee, minimum earnings rate of 4%, choice of lifetime pension or cash at 65, or a combination of converting 75% into pension and taking 25% as cash. HOWVEVER its returns are usually 5-5.5%

That sounds like one of those schemes where it doesn't pay to die too soon after retirement. Why not stop paying in now and get into something where it least you can leave something to a beneficiary?

[Sgt Pepper]

That sounds like one of those schemes where it doesn't pay to die too soon after retirement. Why not stop paying in now and get into something where it least you can leave something to a beneficiary?

Thanks FP
NPF would pay any pension to my wife if I died. However I would be very satisfying to arrive at an age having constructed a durable wealth producing portfolio. I have always liked Property for Industry, for instance. However the thought of losing money horrifies me.

[fungus pudding]

Thanks FP
NPF would pay any pension to my wife if I died. However I would be very satisfying to arrive at an age having constructed a durable wealth producing portfolio. I have always liked Property for Industry, for instance. However the thought of losing money horrifies me.

Yes but that's the limitation of those schemes that they're limited to self and partner, but it's important to be comfortable with your investments. PFI sounds good to me, as do most of the listed property funds. I consider them very low risk.
I might be biased though - I've got a few. :-)

[kiora]

Can anyone recommend a book on the NZ Sharemarket which is useful. Does not seem to be a lot out there aimed a the novice investor. I have read Martin Hawes. I have always been interested in shares but only have one small shareholding. Perhaps I am too conservative. All our retirement savings ( I am 58) are with the National Provident Fund. Lots of positives, unconditional Government guarantee, minimum earnings rate of 4%, choice of lifetime pension or cash at 65, or a combination of converting 75% into pension and taking 25% as cash. HOWVEVER its returns are usually 5-5.5%

You could start here SP
http://www.sharechat.co.nz/books.html

[percy]

Thanks FP
NPF would pay any pension to my wife if I died. However I would be very satisfying to arrive at an age having constructed a durable wealth producing portfolio. I have always liked Property for Industry, for instance. However the thought of losing money horrifies me.

Take care.
I do not think the sharemarket is suitable for you,as you could very easily lose money.
At your age it would be so easy to get things wrong,and you would not have the time to recover .Takes about 10 years to begin to understand the market.I have been following it for 49 years and am still learning. [starting to get a few right].
At lot of people went for higher returns with finance companies,and lost "the lot."
Enjoy your peace of mind,and for a bit of "excitement" buy a very small holding in PFI.
Should you lose money with PFI, remember the directors will be losing heaps as they have large holdings.

ps.I have only once before told another poster I did not think the sharemarket was suitable for him.
I was very disappointed he did not take my advice,as he went on to lose $300,000 or $400,000.!

[King1212]

Take care.
I do not think the sharemarket is suitable for you,as you could very easily lose money.
At your age it would be so easy to get things wrong,and you would not have the time to recover .Takes about 10 years to begin to understand the market.I have been following it for 49 years and am still learning. [starting to get a few right].
At lot of people went for higher returns with finance companies,and lost "the lot."
Enjoy your peace of mind,and for a bit of "excitement" buy a very small holding in PFI.
Should you lose money with PFI, remember the directors will be losing heaps as they have large holdings.

ps.I have only once before told another poster I did not think the sharemarket was suitable for him.
I was very disappointed he did not take my advice,as he went on to lose $300,000 or $400,000.!

I agreed with Percy. Just like Buffet said..if u can't see or bear your share goes down 50% then u should not be in the share market.

[couta1]

I remember a few years ago Percy suggested I wasn't suited to the share market, since then I have become a battle hardened share market warrior doing things my own way (Thanks Percy your words helped firm my resolve):cool:

[percy]

I remember a few years ago Percy suggested I wasn't suited to the share market, since then I have become a battle hardened share market warrior doing things my own way (Thanks Percy your words helped firm my resolve):cool:

I can only hope Sgt Pepper sees it differently.!!!