View Full Version : What are your Investment Rules?
oldtech
03-05-2019, 02:51 PM
As a newish and very green investor, I am slowly - very slowly - trying to work out which strategies work for me, and which don't. Alongside that I'm also trying to develop my own rules, my guiding principles, in an attempt to make sure that having worked out a strategy to follow I then stick to certain rules. Rules like:
- not investing too much in one company, no matter how much I'm convinced it's the next big thing
- which shares are my "bottom drawer shares" and which are my "trading shares"
- resisting the temptaion to meddle too much
As I read posts across the board, I've seen people refer to the rules they follow. Seems like people vary between:
- no rules at all
- follow your gut instincts
- then all the way up to carefully designed thought-out plans
So I'm curious to know, what are some of the rules that you follow? Are they hard and fast rules that you NEVER deviate from? Or they more guidelines, to be tweaked constantly?
oldtech
03-05-2019, 02:51 PM
My starter for 10, learned through not following it when I first started :eek2: is:
Never sell shares in one company simply to fund the purchase of shares in another company. I’ve done it a few times and regret it. Plus it eats up any profits in brokerage fees.
BeeBop
03-05-2019, 06:25 PM
My initial requirement, if it is an individual share (as opposed to a listed trust), it must pay a dividend, and the dividend cover needs to be at least 1.5x. This keeps my mind going when the market tanks!
Snoopy
03-05-2019, 10:05 PM
As I read posts across the board, I've seen people refer to the rules they follow. Seems like people vary between:
- no rules at all
- follow your gut instincts
- then all the way up to carefully designed thought-out plans
So I'm curious to know, what are some of the rules that you follow? Are they hard and fast rules that you NEVER deviate from? Or they more guidelines, to be tweaked constantly?
These are some of the rules I follow off the top of my head.
1/ Make sure any company you invest in makes a net profit after tax (or is imminently projected to do so).
2/ Try and invest in 'pairs'. Pick the two best companies in any industry you want to invest in and split your investment between both. This should prevent you from thinking you can always pick the one best company to invest in when you are constantly reminded of what the opposition is up to!
3/ Buy a company that you wouldn't mind holding on to if the share market closed for five years. This guards against post acquisition overtrading.
4/ Buy something with a personal connection to you or a family member. I mean connection very loosely. It could mean:
a/ The company engages in a hobby interest of yours,
b/ The company is involved in some industry you have worked in, in the past.
c/ The company supplies critical components to another one of your investments.
All these 'links' mean it won't be chore keeping up with your investments in the future.
5/ Buy shares in a company, from where you or a family member can imagine being a customer. This helps preserve your own moral investment integrity.
SNOOPY
oldtech
06-05-2019, 07:28 AM
Snoopy, I like numbers 4 and 5 - a little bit tangential from the usual!
Snoopy
06-05-2019, 08:44 AM
Snoopy, I like numbers 4 and 5 - a little bit tangential from the usual!
More on 4/ One of the examples that came to mind when I was writing this was my investment in Restaurant Brands. I can't say I have ever been a fast food addict, although I have eaten a modest amount over the years. That means I was familiar to the product and via being a shareholder gradually came to appreciate the metrics in running such a business. Then I saw all those franchise fees going out and thought:
"Hey where is all 'my' restaurant brands money going?"
When I figured out it was going offshore - regardless of restaurant profitability - to an outfit called 'Tricon Restaurants' (now renamed 'YUM Brands'), I decided I wanted to be part of that action. YUM of course owns the intellectual property, about which Restaurant Brands is based.
Later in 2016, YUM split by spitting out its China based division into a separate sharemarket entity 'YUM China'. My first instinct was to sell my interest in 'YUM China' because it was two steps away from the reason I made my original investment in RBD. However, it did satisfy my investment point 2, and it now provides a comparative 'paired' investment to my remaining stake in 'Restaurant Brands'. Furthermore NZ is now very dependent on trade in China. So I find it interesting to own a stake in a 'western concept' business that is trying to establish itself in the Chinese market. I am hoping that will help me better understand future investments I make in New Zealand that are trying to establish themselves in China.
More on 5/ I think 'imagining the customer experience' is a useful tool for thinking about business risk. And if you have personal experience that is relevant, and that experience is part of a 'positive solution' to a problem that makes any such investment more satisfying. I don't think anyone wants to go to bed at night having an investment in a company they don't believe in.
SNOOPY
Leftfield
06-05-2019, 03:44 PM
Hi OldTech and others, herewith my input FWIW.
Left Field's Share Market strategies
1. Take time to write down your own personal investment goals and strategies
2. Patient Money. The money you invest in the share market must be prepared to wait patiently without pressure of repayment or penalty interest rates. When investing in any company you should be prepared to ‘ride’ that investment for 5 years or more. Thus it is best to avoid borrowing to invest and to avoid ‘margin lending’. Ideally you will have no debt. Your mortgage will be paid and you will have freehold property assets providing you with a spread of investments of real estate and shares.
3. Embrace risk. Appreciate that without risk there is no gain, but a prudent investor can reduce risk and can make sure that mistakes (when they do happen) are only small mistakes. A prudent investor will see mistakes as learning opportunities.
4. Do not ignore the small cap’s for opportunities. As Jim Slater points out in his excellent investment book, “The Zulu Principle,” the small investor has significant advantages over the institutional investors (including banks).
“The institutions prefer leading stocks because their marketability is better…..most leading brokers cannot spare the time and money to research smaller stocks…. you are therefore more likely to find a bargain…. in this relatively under-exploited area.”
5. Look for;
a) Sound Coys (Focus on what the company is doing – not what the share price is doing)
b) Sound management.
c) Sound financials (not likely to need to raise cash) (eg the P/E ratio is key.
d) Dividends a help (but not essential if opting for high growth.) Steady growth in EPS etc.
e) Diversified, eg not soley reliant on the NZ economy. Prefer a concept or product that is sets the ‘world’ as it’s market eg ATM, XRO, FPH, MFT, etc.
f) Leader in sector or potential to be, or strong, strong growth potential.
6. I choose to avoid Mining/Petroleum/Gold and unethical investments such as tobacco, guns, gambling etc.
7. Use TA to time purchases. Look for a positive price trend above either 90 day or 120 day moving av. Buy only on a confirmed uptrend. Use the ‘golden cross’ and ‘death cross’ signals as buy and sell signals.
8. Stalk a share that you like and over time observe and buy on dips, nibble at a share you have faith in over time. In generally it is not wise to purchase large tranches all at once.
9. Learn to set rules over feelings and sell if the SP goes below 100 MA or a death cross appears on the TA.
10. Aim always for Long term trades to take advantage of NZ's tax free capital gains.
11. Recognise that too much diversification may not be such a great idea, indeed the more diversified you are, the more 'average' your returns will be. If you want to beat 'average' returns, you may be better to concentrate on fewer 'winners.' (Example, since 2014 ATM has been over 60% of my portfolio (by value), and has provided my small portfolio (of only 5 to 8 companies,) outstanding returns, much better than the NZX 50 yardstick.)
As always DYOR and take responsibility for your own investment decisions. Good luck out there!!
artemis
06-05-2019, 05:47 PM
Not a rule exactly but I like to have a risk bucket. Shares that will probably tank, but are interesting for various reasons. Like Wellington based, or at least NZ. Innovative. #8 wire. That sort of thing. Including the odd crowdfunding one. I am usually an early adopter. In truth they are mostly dogs or fall over completely, but they are fun.
If 1 out of 10 is a star, fantastic. If not, still fun.
Some of my risky ones on the NZX - BLT, CRP, AOR, PIL. And XRO now on the ASX, not so risky now.
percy
06-05-2019, 07:52 PM
The best advice I can give is to read Left field's post #7.
oldtech
07-05-2019, 07:32 AM
Some excellent advice there, Left field, thank you. You have articulated some good sound principles that I'm glad to realise I'm (mostly) following already! :)
Rules to investing? I look for only 2:
1) Tax efficiency and effectiveness: ie. seeking companies on the basis that they pay a dividend is foolish and forgoes any rise in capital gains (the book value vs share value)
2) Follow great investors: and not your financial adviser. So you pretty much can't go wrong reading about Warren Buffet or John Bogle, especially for the small investor point of view. The 2 open admit going in a low cost index ETF for long term growth is a for sure winner. If you are trying to pick individual stocks, you begin to play the SAME game as manage funds like Kiwi Saver (as those managers are trying to pick individual stocks).
Snoopy
13-05-2019, 10:19 PM
1) Tax efficiency and effectiveness: ie. seeking companies on the basis that they pay a dividend is foolish and forgoes any rise in capital gains (the book value vs share value)
A company that is earning money has three options when declaring a profit.
a/ Pay out all the earnings as a dividend to shareholders.
b/ Keep all the earnings and reinvest those in the business, and in doing so provide extra capital that will enable the business to grow
c/ Choose a combination of paying out a dividend with some of the profit and retaining the rest to help the business grow.
Which strategy is used depends on what kind of market the company is in and whether that market is static shrinking or growing. A company should only retain capital if they can reinvest those retained earnings and be sure that any resulting incremental investment earns more than its cost of capital. If they can't do this, then the company should pay out to share holders all of their earnings as dividends, and let shareholders decide where to reinvest that money for themselves. In this situation, it is absolutely the right thing to do to pay out all the company's earnings as dividends. It would actually be foolish not to do so!
Getting a dividend from a New Zealand company is generally very tax effective. That is because if the company has paid tax on their earnings, you as a shareholder should not as a rule have to pay tax again on that same money.
It is true that capital gains for long term investors carry no tax liability. But it is also true that capital losses for long term investors carry no tax deductibility. So I would challenge the statement that capital gains are more tax effective than dividends for NZ investors in NZ companies.
One particular problem I have noticed with the NZ market is that good growth companies need about five years of operations under the belt to really prove themselves. But so often, five years is enough to gain near market saturation in New Zealand. This means it is very possible to buy an NZ company with a 'proven growth record' only to have the growth story fall apart in year six.
Buyer beware!
SNOOPY
kiora
17-05-2019, 02:23 AM
Some good simple rules
https://www.cnbc.com/2019/05/15/what-ive-learned-about-investing-after-covering-markets-for-29-years.html?__source=yahoo%7Cfinance%7Cheadline%7Cs tory%7C&par=yahoo&yptr=yahoo
A company that is earning money has three options when declaring a profit.
Which strategy is used depends on what kind of market the company is in and whether that market is static shrinking or growing. A company should only retain capital if they can reinvest those retained earnings and be sure that any resulting incremental investment earns more than its cost of capital. If they can't do this, then the company should pay out to share holders all of their earnings as dividends, and let shareholders decide where to reinvest that money for themselves. In this situation, it is absolutely the right thing to do to pay out all the company's earnings as dividends. It would actually be foolish not to do so!
Getting a dividend from a New Zealand company is generally very tax effective. That is because if the company has paid tax on their earnings, you as a shareholder should not as a rule have to pay tax again on that same money.
It is true that capital gains for long term investors carry no tax liability. But it is also true that capital losses for long term investors carry no tax deductibility. So I would challenge the statement that capital gains are more tax effective than dividends for NZ investors in NZ companies.
One particular problem I have noticed with the NZ market is that good growth companies need about five years of operations under the belt to really prove themselves. But so often, five years is enough to gain near market saturation in New Zealand. This means it is very possible to buy an NZ company with a 'proven growth record' only to have the growth story fall apart in year six.
Buyer beware!
SNOOPY
Lead by example. ie The Warehouse group, which in the past countless years has had a horrible track record for fulfilling a dividend paying policy while at the SAME TIME borrowing more debt and issuing tons and tons and tons of shares. They particularly done so throughout the 2000 during their expansion period.
Your view on dividends as being tax efficient misses my point. I'm speaking from a book value per share vs market value per share. Drain the profits in the company and so shall you drain the market share price (there's no way around that). If you seek companies that pay consistent dividends, then seek those that are mature companies with NO market growth (ie utilities). But that's not the story we see in NZ because it's well advertised with brokerage firms like Macquarie where investing in NZ equities is "all about the dividends". No one ever questions the shareholder who does NOT want a dividend because that triggers a tax consequence. No one has thought to say if the capital gain of the share keeps growing, then why not sell a portion of the shares when ever they WANT to elect a return on the investment. But what am I to know? NZ financial advisers know nothing about taxation because from ALL of the ones i've spoke to on the phone in NZ, they tell me, "well you'll need to speak to a tax adviser" which is something very wrong. All qualified CFA CPA advisers in N. America must have a full understanding of tax minimsation for their clients because taxation is such an integral part of investing and retirement planning. No fool in NZ should have to be stuck paying 2 sets of fees for financial advice.
Also it's not about how quick NZ companies can mature in NZ because likewise, they can fade away as quick and why should investors take that kind of risk. You know a small market (that the NZX is), also means small liquidity = the greater risk for the multi-millionaire that can't move in or out quick enough to change their position. It's more like get all the small investors in, and let them watch 95% of the mix of small companies fail.
Best to stick with buying houses - at least there's a for sure way path of keeping all those gains tax free.
Snoopy
19-05-2019, 08:50 AM
Lead by example. ie The Warehouse group, which in the past countless years has had a horrible track record for fulfilling a dividend paying policy while at the SAME TIME borrowing more debt and issuing tons and tons and tons of shares. They particularly done so throughout the 2000 during their expansion period.
'The Warehouse' had a long and very successful expansion period that really only came unstuck after they became number one in the discount department score sector in NZ, then tried to take that model to Australia. The 'attack of the yellow sheds' in Oz was a failure. Growth then was refocused on NZ as 'The Warehouse' tried to become a full scale third force in the grocery sector (largely a failure) within the 'Red Shed' brand. After that 'The Warehouse' bought into other retail channels like 'Noel Leeming' and 'Torpedo 7'. Noel Leeming I think has been a largely successful acquisition. But Torpedo 7 has suffered a large write down in goodwill in recent years.
Your argument about 'The Warehouse' retaining more earnings and paying out a smaller or no dividend presupposes that 'The Warehouse' would have been able to use that retained capital wisely. With the possible exception of 'Noel Leeming', the historical hindsight tale is that 'The Warehouse' have been poor users of their own capital. Far from proving your point, I would suggest that the Warehouse is a very good example of a company that should not retain their own earnings. Paying those big dividends out of their earnings looks like the right thing to have done.
SNOOPY
Snoopy
19-05-2019, 09:08 AM
I'm speaking from a book value per share vs market value per share. Drain the profits in the company and so shall you drain the market share price (there's no way around that).
I agree that in the medium term what you say above is correct, in a general sense.
If you seek companies that pay consistent dividends, then seek those that are mature companies with NO market growth (ie utilities). But that's not the story we see in NZ because it's well advertised with brokerage firms like Macquarie where investing in NZ equities is "all about the dividends".
The NZX has plenty of utility companies that you can invest in that are 'all about dividends'. Not sure of the point you are trying to make with those two sentences.
No one ever questions the shareholder who does NOT want a dividend because that triggers a tax consequence. No one has thought to say if the capital gain of the share keeps growing, then why not sell a portion of the shares when ever they WANT to elect a return on the investment. But what am I to know?
Making a profit will generate a tax consequence for a company, whether or not that profit is paid out as a dividend. So what you are suggesting is that a company that is making a profit should buy a company that is making a loss to extinguish that profit and the consequent tax liability?
I get you idea of taking a capital profit in small annual chunks rather than receiving that same money via a regular annual dividend. But the imputation credit system we have in NZ means that such a choice is 'tax neutral' for NZ shareholders. In NZ, there is no tax advantage in behaving as you suggest. In the US, with US investors investing in US companies, I accept your strategy may have merit.
NZ financial advisers know nothing about taxation because from ALL of the ones i've spoke to on the phone in NZ, they tell me, "well you'll need to speak to a tax adviser" which is something very wrong. All qualified CFA CPA advisers in N. America must have a full understanding of tax minimsation for their clients because taxation is such an integral part of investing and retirement planning. No fool in NZ should have to be stuck paying 2 sets of fees for financial advice.
I don't class myself as a cheerleader for NZ's financial advisors. But I don't think your criticism here is fair or accurate. You must have asked a very convoluted question to elicit the phone responses you have received. I am sure that if you had gone in to see these advisors in person, then you would have found a much more informed response forthcoming. Having said this, while I would expect NZ Financial Advisors to have a good grasp of NZ tax laws and their consequences, I wouldn't expect them to be able to advise on specific overseas tax issues.
If you have questions on NZ tax laws, the IRD website technical section for tax practitioners has all the information there is to know. Sometimes you have to go to the also on line 'Tax Information Bulletins' for a specific ruling. There is no charge for accessing these resources.
Also it's not about how quick NZ companies can mature in NZ because likewise, they can fade away as quick and why should investors take that kind of risk. You know a small market (that the NZX is), also means small liquidity = the greater risk for the multi-millionaire that can't move in or out quick enough to change their position. It's more like get all the small investors in, and let them watch 95% of the mix of small companies fail.
Investing in small high growth start ups is a high risk return game all over the world. Often an 'angel investor' selling down to let in a lot more smaller investors in is the only way small investors can participate in these business ventures. These ventures still remain high risk return though. You can't blame the ownership structure and 'big boys in the know selling out' for every NZ start up company failure.
Best to stick with buying houses - at least there's a for sure way path of keeping all those gains tax free.
No it isn't. Contrary to popular belief, you can lose capital by investing in property.
SNOOPY
Aaron
19-05-2019, 09:39 AM
Best to stick with buying houses - at least there's a for sure way path of keeping all those gains tax free.
As long as it is longer term any residential property that is not your own home sold within 5 years of buying it for a profit will be taxable. Bright Line Test.
I agree that in the medium term what you say above is correct, in a general sense.
The NZX has plenty of utility companies that you can invest in that are 'all about dividends'. Not sure of the point you are trying to make with those two sentences.
My point is the over emphasis of dividend payments without consideration of appreciation in share price across pretty much all listed NZX companies. I'm not talking exceptions here but a company like The Warehouse should not have a dividend policy during their expansion stage (once they've built enough red sheds all over NZ, then ok i can see the argument). It's prevalent talk in NZ where when people discuss investments in equities (in any share holding), they put dividend payment as the priority. It's riddled in NZ talk so much that NZ brokerage firms use the same emphasis to their clients.
Making a profit will generate a tax consequence for a company, whether or not that profit is paid out as a dividend. So what you are suggesting is that a company that is making a profit should buy a company that is making a loss to extinguish that profit and the consequent tax liability?
???? Let me clarify to the elementary learner. If a company looks to do expansion, they require capital ($$) to deploy. What are the ways a company can raise $ ? Actually I can't believe i'm questioning this as every finance major (and thus every Financial Adviser) should know the main ways for raising capital. i) Borrowing direct from the bank or from external entities ii) Issuing Junk Bonds iii) Issuing more shares ; common or preferred, and iv) Retained Earnings or Shareholder's Equity. Which one poses the least impact on the state of the company's finances? Ding Ding! it would be the latter, using after tax profits it's retained in equity. But The Warehouse group didn't do that. No no, for decades they dished out a stupid 5 or 6% dividend policy while doing the worse, issuing more common shares. No where did I imply profits to be maintained in a company to buy out a losing company - where did that idea come from?
I get you idea of taking a capital profit in small annual chunks rather than receiving that same money via a regular annual dividend. But the imputation credit system we have in NZ means that such a choice is 'tax neutral' for NZ shareholders. In NZ, there is no tax advantage in behaving as you suggest. In the US, with US investors investing in US companies, I accept your strategy may have merit.
'Dividend Tax Credit' is standard treatment everywhere ; because it's not fair to apply corporate tax rates on the profits of a company, then issues dividends where the shareholders again get taxed at the full marginal tax bracket. I know this... What it seems is, somehow, they've forgot that a capital gain is tax free. Warren Buffet has been very critical about this and will never ever pay a dividend from Berkshire.
I don't class myself as a cheerleader for NZ's financial advisors. But I don't think your criticism here is fair or accurate. You must have asked a very convoluted question to elicit the phone responses you have received. I am sure that if you had gone in to see these advisors in person, then you would have found a much more informed response forthcoming. Having said this, while I would expect NZ Financial Advisors to have a good grasp of NZ tax laws and their consequences, I wouldn't expect them to be able to advise on specific overseas tax issues.
No they don't. The questions I asked regarded around FIF / FDR rules and more specifically, if a wealthy person living in NZ was to inherit $10M from a family member living in N. America, for which the $ is wholly invested in US equities, what would the NZ resident best do with that $ ? It's not even questions like this. Most simply tell me straight out that from a tax point of view, you're better to invest in NZ real estate; after all, the key reason why the NZ gov't has been trying to attack rising house prices with CGT is to address the gross differences between investing in managed style funds or in real estate. BWT, none of the financial advisers informed about using IRD's website but instead, say they know a great 'tax consultant' I can be referred to.
Investing in small high growth start ups is a high risk return game all over the world. Often an 'angel investor' selling down to let in a lot more smaller investors in is the only way small investors can participate in these business ventures. These ventures still remain high risk return though. You can't blame the ownership structure and 'big boys in the know selling out' for every NZ start up company failure.
No it isn't. Contrary to popular belief, you can lose capital by investing in property.
NZ shouldn't even be in this game of speculating small start ups in NZ. Take a look at the investment make up in Scandinavian countries; they're smart enough to figure out that they have no barriers for their citizens to speculate. Notably, investors there (and gov't pensions there) invest directly in US equities - even in small risky startups in the US. Instead in NZ, we have a TAXED coerced decision by Michael Cullen (who brought in FIF) to address this discrepancy by making NZ residents to favor NZ assets.
Let me put it this way. If we were go shopping in a massive supermarket complex and all the shelves are full of choices you can choose to invest in. What % does NZ sit in all those shelves? Maybe 1% at best? So why should people in NZ be limited to choosing their retirement in that 1% of the global market share of assets to choose to invest in?
@Aaron: As long as it is longer term any residential property that is not your own home sold within 5 years of buying it for a profit will be taxable. Bright Line Test.
The Bright Line Test was a joke to begin with when they changed it to 2 years. No one is going to think 5 years is would make any difference. It won't. IRD already has rules in place where if you flip a house, the gains are taxed at income rates. Do it many times over 1 year after another.. expect to be taxed on the capital gain. Planning for retirement doesn't come in 2 or 5 years... the time frame should be over decades, for which this 5 year holding period on a house is of moot interest.
Aaron
20-05-2019, 07:48 AM
The Bright Line Test was a joke to begin with when they changed it to 2 years. No one is going to think 5 years is would make any difference. It won't. IRD already has rules in place where if you flip a house, the gains are taxed at income rates. Do it many times over 1 year after another.. expect to be taxed on the capital gain. Planning for retirement doesn't come in 2 or 5 years... the time frame should be over decades, for which this 5 year holding period on a house is of moot interest. [/FONT][/COLOR]
It was never changed to 2 years it came in at 2 years and has changed to 5 years. The reason it came into being was probably vote grabbing as people became jealous of house flippers making heaps of untaxed dollars because existing rules were pretty weak.
Snoopy
20-05-2019, 09:00 AM
'Dividend Tax Credit' is standard treatment everywhere; because it's not fair to apply corporate tax rates on the profits of a company, then issues dividends where the shareholders again get taxed at the full marginal tax bracket. I know this... What it seems is, somehow, they've forgot that a capital gain is tax free. Warren Buffet has been very critical about this and will never ever pay a dividend from Berkshire.
There is a substantial difference in the treatment of dividends paid to NZ citizens from NZ companies, and US citizens receiving dividends from US companies.
I believe that US companies pay tax on their profits. Then shareholders pay tax again on any dividends received from those tax paid profits. Contrast this to the NZ case where NZ companies pay tax and build up 'imputation credits' with the IRD. Dividends can then be paid out to the company's shareholders with no further tax liability, as long as the company's imputation credit balance is positive.
Your assertion that NZ shareholders of NZ companies are paying tax twice on the same profits when they receive dividends is not correct.
SNOOPY
It was never changed to 2 years it came in at 2 years and has changed to 5 years. The reason it came into being was probably vote grabbing as people became jealous of house flippers making heaps of untaxed dollars because existing rules were pretty weak.
Ok, it was INTRODUCED at 2 years and CHANGED to 5 years. Being too critical are we? All the people I know that bought real estate in Auckland 10-20 years ago have made bank. Not a single i've known bought with the intention to sell within 2 or 5 years. Instead they kept buying more houses and if you ask me, owning NZ real estate has turned out a very good strategy for retirement planning. As i've pointed out, there's a huge difference in tax treatment between those that choose to invest with ie Kiwi Saver vs those that bought Auckland properties.
Aaron
20-05-2019, 11:47 AM
Ok, it was INTRODUCED at 2 years and CHANGED to 5 years. Being too critical are we? All the people I know that bought real estate in Auckland 10-20 years ago have made bank. Not a single i've known bought with the intention to sell within 2 or 5 years. Instead they kept buying more houses and if you ask me, owning NZ real estate has turned out a very good strategy for retirement planning. As i've pointed out, there's a huge difference in tax treatment between those that choose to invest with ie Kiwi Saver vs those that bought Auckland properties.
Just thought I would help you get your facts straight. Too critical?? I don't think so, I just thought I would help you with your facts. Don't disagree regarding housing having been a better bet than Kiwisaver though.
To be fair I am not adding to the debate.
Snoopy
21-05-2019, 08:39 AM
Most simply tell me straight out that from a tax point of view, you're better to invest in NZ real estate; after all, the key reason why the NZ gov't has been trying to attack rising house prices with CGT is to address the gross differences between investing in managed style funds or in real estate. BWT, none of the financial advisers informed about using IRD's website but instead, say they know a great 'tax consultant' I can be referred to.
SBQ, I am not a property investor, unless you count owning your own house as an investment (I see it as somewhere to live). So if any property investor is reading this and I have got what I am about to say wrong please feel free to correct me. But I think that the tax treatment of NZ property investment verses NZ based managed funds has been largely evened out.
1/ Claiming depreciation on building structures is largely not allowed. It used to be the case that a rental property owner could claim depreciation on a house that was clearly appreciating in value. While any such depreciation claimed would have to be paid back to the IRD if a rental house was eventually sold at a capital profit, the net effect for the landlord was to get an interest free loan consisting of the cumulative depreciation claimed. That rort is no longer available.
2/ Landlords can still claim depreciation on certain fittings such as carpets and curtains. This leads to a lower tax bill, because net rental income is reduced. Some might argue that this is still a cashflow advantage to the landlord. But these fittings do wear out and will require real cash to replace. So I do not see this as a rort.
3/ I think there are certain 'ring fence' rules as well where you can't offset losses on one rental property against gains on another. I am a bit vague on this so I would appreciate if any property investors can further explain. This restriction does not apply to share and managed fund investment where everything is managed on a portfolio basis.
4/ Certain equity managed fund investments have a tax structure known as a PIE. That means shareholders are taxed at a maximum rate of 28%, a concession rate not available to own your own property investors.
5/ All banks will loan more money against a property than a share investment portfolio. But this is only an advantage if the underlying investment does increase in value. I would argue that at current market prices, the outlook for equities is better than the outlook for property.
6/ The loop hole where non-residents of NZ can buy property in NZ for tax free capital gain to be raked off overseas has been mostly closed (Australians and Singaporeans can still do it). This should see house prices in the future only increasing in value to the extent that NZ buyers increase their own underlying earning/borrowing ability. And that means headwinds for the property market in the medium term.
SNOOPY
Snoopy
21-05-2019, 10:14 AM
No where did I imply profits to be maintained in a company to buy out a losing company - where did that idea come from?
The only legitimate way to reduce company tax is to reduce company profits. If a company that is making a profit buys a company that is losing money, that is a sure fire way to do this. There is no other way to legitimately 'manipulate' (sic) the tax system in NZ that I am aware of.
Your alternative suggestion of a profitable company not paying dividends to shareholders will not reduce the tax liability either directly or indirectly to shareholders. At least it won't in NZ.
Let me clarify to the elementary learner. If a company looks to do expansion, they require capital ($$) to deploy. What are the ways a company can raise $ ? Actually I can't believe i'm questioning this as every finance major (and thus every Financial Adviser) should know the main ways for raising capital.
i) Borrowing direct from the bank or from external entities
ii) Issuing Junk Bonds
iii) Issuing more shares ; common or preferred, and
iv) Retained Earnings or Shareholder's Equity.
Which one poses the least impact on the state of the company's finances? Ding Ding! it would be the latter, using after tax profits it's retained in equity. But The Warehouse group didn't do that. No no, for decades they dished out a stupid 5 or 6% dividend policy while doing the worse, issuing more common shares.
There is one other way to create new equity. Simply watch it materialise 'out of the ether' as evidenced by the increasing underlying value of existing assets on the books. This is what I have termed 'thin air capital' creation, and this is how Mercury Energy funds building their new power stations.... but I digress.
Paying dividends is a way to create demand for shares from another pool of investors. That should help support a share price and enable new shares to be issued at a higher price (theoretically good for all existing shareholders), as there will be less dilution if/when new capital is raised.
I won't defend the way WHS has been operated over recent years. I would say that I believe issuing junk bonds is actually the cheapest way to raise development capital, not utilising retaining earnings. But all this presupposes that the new capital raised will be wisely invested. And I think WHS shareholders of recent years can rightly question whether this has happened!
SNOOPY
The only legitimate way to reduce company tax is to reduce company profits. If a company that is making a profit buys a company that is losing money, that is a sure fire way to do this. There is no other way to legitimately 'manipulate' (sic) the tax system in NZ that I am aware of.
Your alternative suggestion of a profitable company not paying dividends to shareholders will not reduce the tax liability either directly or indirectly to shareholders. At least it won't in NZ.
There is one other way to create new equity. Simply watch it materialise 'out of the ether' as evidenced by the increasing underlying value of existing assets on the books. This is what I have termed 'thin air capital' creation, and this is how Mercury Energy funds building their new power stations.... but I digress.
Paying dividends is a way to create demand for shares from another pool of investors. That should help support a share price and enable new shares to be issued at a higher price (theoretically good for all existing shareholders), as there will be less dilution when new capital is raised.
I won't defend the way WHS has been operated over recent years. I would say that I believe issuing junk bonds is actually the cheapest way to raise development capital, not utilising retaining earnings. But all this presupposes that the new capital raised will be wisely invested. And I think WHS shareholders of recent years can rightly question whether this has happened!
SNOOPY
I don't get your logic at all but I respect that. We all have differences in view. I'll try to explain my logic.
Where is the need for the company to reduce tax? What emphasis should a company reduce tax liability that i've mentioned? I did say that at the individual shareholder level, yes tax minimisation is #1 in any investment planning. If you're a share holder of a company that has that kind of logic ; then I would have to say that's not a very good company to own. It's not even remotely the concept of a company to exist if they have a motive to draw down expenses in all sorts of means just so they can lower their income. My view is simple, pay the going 30% corporate tax rate and KEEP THE $ in the 'shareholders equity' on the company's balance sheet. This will automatically raise the company's book value per share which is GREAT for the share holder. Never in the way of a 'growth' company should they have to rely on borrowing funds externally when they have enough after tax profits to be used to fund expansion.
How is demand created for shareholders? Well certainly not by paying dividends that draw down the book value of the company. In finance class, we spend a lot of time around the balance sheet and looking at external controls such as when the company floats more shares. There is NOTHING worse to the existing shareholders than when a company practices 'share dilution'. It's just pure evil. But what i've seen happen in NZ listed companies all too often, is they try to blind their current shareholders by issuing a sweetener dividend while at the same time, float more shares. That's ok, i've never expected the avg NZ shareholder to understand the ins and outs of financial statements. All that fancy annual reports that talk a lot a waffle but no direct disclosure of EPS (Earnings Per Share) ; you have to dig and calculate that yourself for most listed NZ companies.
SBQ, I am not a property investor, unless you count owning your own house as an investment (I see it as somewhere to live). So if any property investor is reading this and I have got what I am about to say wrong please feel free to correct me. But I think that the tax treatment of NZ property investment verses NZ based managed funds has been largely evened out.
.. points 1 -> 6
SNOOPY
Far from being an even playing field between share investment vs owning houses. I did not mention depreciation either so that should not be part of the mix. You didn't have to and the NZ gov't should of stopped this practice long long time ago. Just look at the 2 asset classes alone
a) Share investment ie Kiwi Saver / PIE funds you name it. Paying 28% in tax vs
b) A house in Auckland, which pays a very small portion of taxation of maybe 5%? [Rates + Insurance and any miscellaneous outgoings].
You don't even have to work out the difference, just open your eyes and see why so many people in NZ have invested in real estate hand over fist than plunking down a million dollars in some Kiwi Saver fund. No one is going to put in $1M into a managed fund that is stung 28% tax on the gain every year. You know why? Because the banks themselves don't do it, but they would gladly lend on the real estate asset.
Let's recap. Since when houses in NZ have lost value over a multi-decade time frame? After all when you choose a retirement strategy, it happens on a "long term" approach. So we're talking 20 or 30 years. The banks know better that houses don't lose value over a 20 or 30 year time frame.
Not trying to say share investments is a bad thing. If I was living in the US or in Canada, then the table would be flipped around as they have extensive capital gains tax laws that makes real estate less attractive than owning equities.
Don't take my word for it. I've spoken to many financial advisers in NZ. Years ago I asked about a managed fund in NZ that invested with the same view of Warren Buffet's Berkshire Hathaway. They thought hard and told me there was none, even in Australia that they knew off the top of their head. They went on to explain that it's not the focus of what NZ investors seeks ; again going back to, the preference is they seek dividend payment as the measure of the company's performance. FYI, BRKA share price in 1964 was $19 - go look at it what it's worth today.
Snoopy
21-05-2019, 09:11 PM
Far from being an even playing field between share investment vs owning houses. I did not mention depreciation either so that should not be part of the mix. You didn't have to and the NZ gov't should of stopped this practice long long time ago. Just look at the 2 asset classes alone
a) Share investment ie Kiwi Saver / PIE funds you name it. Paying 28% in tax vs
b) A house in Auckland, which pays a very small portion of taxation of maybe 5%? [Rates + Insurance and any miscellaneous outgoings].
A retail property investor pays income tax at their marginal tax rate. This is never as low as 5%. If they are paying no income tax, this means their outgoings on the property exceed their rental income from that property. They aren't paying income tax because they aren't earning any net income!
You don't even have to work out the difference, just open your eyes and see why so many people in NZ have invested in real estate hand over fist than plunking down a million dollars in some Kiwi Saver fund. No one is going to put in $1M into a managed fund that is stung 28% tax on the gain every year.
No, they pay 28% on the income earned by that fund. Any capital gain is tax free, just like any capital gain in the revaluation of a rental property is tax free.
You know why? Because the banks themselves don't do it, but they would gladly lend on the real estate asset.
Banks are prepared to lend more on property, because there are government mandated rules that allow loans on property to have a lower risk weighting factor when evaluating the creditworthiness and robustness of a bank loan portfolio. For that reason, you shouldn't use the leverage you can obtain on any investment as representing the future earnings you might expect from that investment going forwards.
Let's recap. Since when houses in NZ have lost value over a multi-decade time frame?
Ask anyone who owned a house in certain suburbs along the Avon river after the Christchurch earthquakes. The houses and the underlying land was destroyed for living purposes. Worthless, very likely, for decades.
After all when you choose a retirement strategy, it happens on a "long term" approach. So we're talking 20 or 30 years. The banks know better that houses don't lose value over a 20 or 30 year time frame.
Ever heard of a mortgagee sale?
The problem for retail property investors is not the value of their property in 20 to 30 years time. The problem is surviving in the vicissitudes of the real estate market up to that point. If you have a 20% deposit on a rental property and house prices drop by 20% then all your capital is lost. The fact that this same property might be worth more ten years down the track will be for the benefit of the subsequent owner the bank sells the property on to - not you.
SNOOPY
Snoopy
21-05-2019, 09:45 PM
I don't get your logic at all but I respect that. We all have differences in view. I'll try to explain my logic.
Where is the need for the company to reduce tax? What emphasis should a company reduce tax liability that I've mentioned? I did say that at the individual shareholder level, yes tax minimisation is #1 in any investment planning....
Stop right here.
If you accept that tax minimisation is at individual level is no.1 at individual shareholder investment planning, that means you also accept it is also the number one need for the company in which the shareholder owns shares to reduce tax. This follows because the tax incurred by the shareholder is exactly the same tax debt incurred by the company. The tax is paid by the company on behalf of the shareholder. If the tax was paid in cash, then the serial numbers on those dollar bills are the same as the serial numbers on the same dollar bills that the shareholder has handed over. They are exactly the same piles of money. You cannot separate one from the other.
SNOOPY
Snoopy
21-05-2019, 10:32 PM
If you're a share holder of a company that has that kind of logic (buying a loss making company to extinguish your profits); then I would have to say that's not a very good company to own. It's not even remotely the concept of a company to exist if they have a motive to draw down expenses in all sorts of means just so they can lower their income.
There was once a company on the NZX, in the pre internet days, called 'Brierley Investments Limited' that operated in this way (edit: Actually they targeted companies with lazy assets on the balance sheet. 'Making an operational loss' was not a must have purchase consideration, although loss making companies would likely be purchased for less). Very successful it was too, for 20+ years. The loss making companies were asset stripped and sometimes returned to the market in a leaner more focussed form. The objective in buying such companies was not, of course, to make a permanent loss on the deal, but to turn these companies around. The fact that there was a tax free period of acquired subsidiary ownership was useful and increased the day to day cashflow that Brierley Investment's had.
SNOOPY
Snoopy
21-05-2019, 10:43 PM
All that fancy annual reports that talk a lot a waffle but no direct disclosure of EPS (Earnings Per Share); you have to dig and calculate that yourself for most listed NZ companies.
Taking your last line first, I couldn't agree more. 'Eps' growth is what any shareholder should be looking out for.
My view is simple, pay the going 30% corporate tax rate
For someone so concerned with tax, I am surprised you have not caught up with the fact that the NZ corporate tax rate is now 28%, and has been for several years.
and KEEP THE $ in the 'shareholders equity' on the company's balance sheet. This will automatically raise the company's book value per share which is GREAT for the share holder.
Generally I agree with you. However, unless that new retained earnings capital can be profitably reinvested, then it may not be so great for shareholders. There is no law against management reinvesting their new retained earnings foolishly.
Never in the way of a 'growth' company should they have to rely on borrowing funds externally when they have enough after tax profits to be used to fund expansion.
In finance class, we spend a lot of time around the balance sheet and looking at external controls such as when the company floats more shares. There is NOTHING worse to the existing shareholders than when a company practices 'share dilution'. It's just pure evil. But what i've seen happen in NZ listed companies all too often, is they try to blind their current shareholders by issuing a sweetener dividend while at the same time, float more shares. That's ok, i've never expected the avg NZ shareholder to understand the ins and outs of financial statements.
What you have outlined above is exactly why 'earnings per share growth', not 'earnings growth' is what shareholders should seek. Yet you don't acknowledge that having a lesser amount of equity and some debt can be a way to increase 'earnings per share'. Not all company debt is 'bad'.
How is demand created for shareholders? Well certainly not by paying dividends that draw down the book value of the company.
Have you considered that not all shareholders want the same thing from a company? If you want dividend income and a share doesn't pay any dividend, then you won't put in a bid to buy. Paying a dividend can open a share up to a whole new class of investors. Constrained supply and more demand means the share price will probably go up.
SNOOPY
You know SNOOPY, you have a great way of wording AROUND my answers where I make no relevance to them. Specifically with the emphasis on dividends. Shareholders that choose dividends should not choose companies that have growth prospects. There are plenty of such companies like utilities (have I not mentioned this before?).
As for the individual owning real estate vs shares - we've beaten the issue long enough. You can infer from different angles but does not change the fact that in NZ, real estate ranks supreme as the main investment. It's been pointed out many times throughout the decades, even when Michael Cullen has been pushing towards getting NZ people away from houses and into the NZ share market. If a person has $1M to invest. He's not going to be crazy to put that in Kiwi Saver where the corporations can dish out dividends. What the real estate owner wants is that tax free capital gain. Oh and since there's this focus on dividends, you can forget about that tax free capital gain on corporate shares ; no one questions why.
Snoopy
22-05-2019, 08:44 AM
The questions I asked regarded around FIF / FDR rules and more specifically, if a wealthy person living in NZ was to inherit $10M from a family member living in N. America, for which the $ is wholly invested in US equities, what would the NZ resident best do with that $ ?
That question isn't straightforward, as it depends what that wealthy person's objective is. Do they wish to:
1/ Preserve capital?
2/ Generate an optimised income in NZ dollar terms?
3/ Diversify their investment base by holding significant overseas assets that are difficult to invest in locally?
The issue here is that if the portfolio is kept unchanged, then the NZ based investor will be subject to FIF rules. That means tax will be paid at the marginal rate on the opening value of the share portfolio every year. With a $US10m on the first day of the financial year, and our wealthy NZer paying tax at 30% the tax bill will be:
$US10m x 0.05 x 0.30 = $US150,000
Because US companies tend to have a dividend lower yield, you may not receive sufficient income from that portfolio to cover your NZ tax debt. That could be an issue because it means to continue to 'hold' this portfolio, you will have to subsidize the portfolio holding cost out of your NZ income, and that might not be ideal.
SNOOPY
Snoopy
22-05-2019, 09:41 AM
You know SNOOPY, you have a great way of wording AROUND my answers where I make no relevance to them. Specifically with the emphasis on dividends. Shareholders that choose dividends should not choose companies that have growth prospects. There are plenty of such companies like utilities (have I not mentioned this before?).
SBQ, the issue of retaining earnings (i.e. not paying out dividends) as a reputable strategy to fund future growth is not a point I wish to debate with you, because I agree with you, in terms of the general principle. You highlight the example of Berkshire Hathaway who have never paid a dividend as the ultimate example of showing how this strategy works. However, I feel your highlighting of such a dividend policy as the key to multi-year growth of any company is a gross simplification of Buffett's recipe for investment success.
Buffett IIRC is not averse to a company he holds shares in buying back their own shares. This is because if shares are bought back and cancelled, this means the same profits are distributed over less shares increasing earnings per share. But a company can do this by increasing debt: borrowing money to buy back their own shares. So such a strategy can increase company debt. Although Buffett is generally debt averse, it doesn't mean he doesn't think increasing company debt is a good thing under some circumstances.
Going back to your 'Warehouse' example, you suggest that WHS should have built up their red/blue shed footprint all over the country first, and only then start to pay dividends. This to me smacks of retrospective analysis, made with knowledge of what has worked with historical hindsight. I can remember in the pre 'red shed' days when my local Warehouse was little more than one shop in a small suburban shopping centre selling short run imported furniture and soft furnishings. I suspect at that time, WHS management did not know where they would end up ten or more years down the track. I suspect that the demise of the rival DEKA chain helped them in ways they could not conceive in the moment.
The point here is that it is not clear when a company's growth phase stops and it is also not clear that any expansion should be 'flat out', 'measured' or 'try and see'. There could be times on the growth path when not all retained earnings are required. So why not pay out the new capital you don't need as a dividend? Likewise an opportunity may come up which requires more capital than retained earnings can provide. In this circumstance it could be quite the right thing to have a 'cash issue', which dilutes existing shareholdings. Your mantra of keeping all retained earnings and only using those to expand the business is not realistic for managing real world growth, in my view.
SNOOPY
Snow Leopard
22-05-2019, 09:59 AM
I really could not give a hoot whether a company pays a dividend or not, I am interested in the total return I can reasonably expect from my investment over time.
Thus I have a financial interest in high growth shares that pay no dividend, low growth shares with a high dividend payout and those who sit between these extremes.
I really could not give a hoot whether a company pays a dividend or not, I am interested in the total return I can reasonably expect from my investment over time.
Thus I have a financial interest in high growth shares that pay no dividend, low growth shares with a high dividend payout and those who sit between these extremes.
The reason why SNOOPY and myself are debating so hard about dividends is something I feel in NZ, investors don't understand the logic (or perhaps have different priorities). There's no gross over simplification on my part and it all is rooted in minimizing the tax load to the individual investor whether you prefer a company with high growth capital gains with no divs or a low growth share with high dividends ; either one has different tax implications. I'm disgusted of the NZ investment approach calling out for dividends REGARDLESS of type of listed company, or approach whether the company is in growth stage or not. It's a pretty much universal expectation share holders want a dividend without regard. Has nothing to do if the board of directors feel they are in a growth stage or not because quite frankly, using the term "dividend" as a way to persuade investors to buy their shares is a very poor strategy without understanding the impact it does to the 'book value' of the company, and not to mention the impact on income tax.
SNOOPY: This is how we were taught in Finance (BCom in N. America). Those that seek dividend payment from a hedge or managed fund ; the typical make up such listed companies in the portfolio would be likes of your utilities, long term matured companies with no growth expansion, etc. Definitely NOT companies like The Warehouse Group that have been in the business for decades that have chosen to keep paying dividends because of some silly policy they made up to keep investor interest. I was at an investor presentation some months ago about Ryman retirement homes. Again I was confused on the high dividend payment while at the same time, borrowing funds and floating more share to do more 'acquisitions' of properties all over NZ and Australia (which is clearly an expansion growth strategy). Their emphasis was again on stupid dividends while I would of expected a 10 or 20 year chart of their stock price instead.
When i'm investing $ into any company, I want a return that GROWS my investment and not a return ON my investment. Know the distinction? I don't want dividends in my hand that takes out the control of my investment because i'm stuck with that income. I much rather choose when I want the income by selling the portion of the shares when needed (and thus, realising the tax free capital gain).
justakiwi
23-05-2019, 07:47 PM
The thing is, not every investor is a big investor with a huge bucket of funds to invest. Some of us are insignificant investors on the grand scale of things. We are simply trying to make the best of what money we do have, rather than watch it depreciate in the bank. People like me, want and need dividends because DRIP is the number one way we can build up our shareholding. Of course down the track we hope to make a capital gain should we ever decide to sell, but that’s not our focus. I get that for people like you, that seems ridiculous, but it works for me. I’m sure there are many other very small investors out there who it also works for.
Having said that, even for big investors there are proven advantages of dividends, as others here are pointing out, but you seem hell bent on trying to prove them wrong. Why does it bother you? If you don’t like dividends don’t invest in companies that pay them. It’s not rocket science.
SNIP
When i'm investing $ into any company, I want a return that GROWS my investment and not a return ON my investment. Know the distinction? I don't want dividends in my hand that takes out the control of my investment because i'm stuck with that income. I much rather choose when I want the income by selling the portion of the shares when needed (and thus, realising the tax free capital gain).
couta1
23-05-2019, 08:07 PM
The thing is, not every investor is a big investor with a huge bucket of funds to invest. Some of us are insignificant investors on the grand scale of things. We are simply trying to make the best of what money we do have, rather than watch it depreciate in the bank. People like me, want and need dividends because DRIP is the number one way we can build up our shareholding. Of course down the track we hope to make a capital gain should we ever decide to sell, but that’s not our focus. I get that for people like you, that seems ridiculous, but it works for me. I’m sure there are many other very small investors out there who it also works for.
Having said that, even for big investors there are proven advantages of dividends, as others here are pointing out, but you seem hell bent on trying to prove them wrong. Why does it bother you? If you don’t like dividends don’t invest in companies that pay them. It’s not rocket science. I love dividends, there is nothing like a nice fully imputed divvy hitting your bank account, in fact my only true long term holding is HLG which also happens to be one of the best divvy stocks on the NZX.
Snow Leopard
23-05-2019, 09:59 PM
....SNOOPY: This is how we were taught in Finance (BCom in N. America)....
at the Donald Trump school of Tact & Diplomacy?
But you are not in Kansas anymore.
Your focus on so called 'tax efficiency' and 'book value' means you are missing out on the broader range of possibilities to maximise your total returns, but probably best you stick with your prejudices rather than learn something new.
https://www.thedodo.com/in-the-wild/photo-camouflaged-snow-leopard
Snoopy
24-05-2019, 09:40 PM
The reason why SNOOPY and myself are debating so hard about dividends is something I feel in NZ, investors don't understand the logic (or perhaps have different priorities). There's no gross over simplification on my part and it all is rooted in minimizing the tax load to the individual investor whether you prefer a company with high growth capital gains with no divs or a low growth share with high dividends; either one has different tax implications.
SBQ, tax in NZ is paid on company profits. The single tax bill the company and its shareholder investors face will not alter depending on whether those profits are paid out as dividends or not. Note this is not the same as in the United States because the tax rules here in NZ are different. Where paying a dividend, or not, does make a difference is that the retained earnings can be used for further investment to grow the business. Dividends paid out are not available for reinvestment. However, provided a company is making a profit, tax will be payable at 28% on that profit. This tax rate is the same whether the company is a 'no growth' utility or a fast growing tech company. Whatever choice of company you choose to invest in, the tax rate will be the same. There are no differential tax implications at all, whatever your choice of company ('growth' or 'no growth'), while 'paying dividends' or 'not' does not affect the tax bill either. Tax is a non issue. The New Zealand tax system, incorporating imputation credits, is designed to keep it this way.
I'm disgusted of the NZ investment approach calling out for dividends REGARDLESS of type of listed company, or approach whether the company is in growth stage or not. It's a pretty much universal expectation share holders want a dividend without regard. Has nothing to do if the board of directors feel they are in a growth stage or not because quite frankly, using the term "dividend" as a way to persuade investors to buy their shares is a very poor strategy without understanding the impact it does to the 'book value' of the company, and not to mention the impact on income tax.
One reason 'growth companies' pay a small dividend is that by doing so, investors can claim to be investing for dividend growth in the future. If a company pays no dividend, then the IRD can argue that you must have bought those shares with the intention of selling for a capital gain. If something has been bought with the express purpose of selling at a profit then than profit is taxable under NZ income tax law. Therefore you should pay income tax on that capital gain. I believe the IRD have trawled through share registers of such companies, noticed when holdings have been liquidated and approached individual ex-shareholders requesting a capital gain tax payment. Someone on this forum mentioned this happened to them, although I can't recall who it was or if they ended up paying the tax.
Paying a dividend will reduce the 'book value' of a company, true. But this is nothing whatsoever to do with tax. Increase the 'book value', the proportion of shareholder owned assets of the company, and you will have more cash to reinvest. But increasing the book value will only increase shareholder value if that increased shareholder equity can be reinvested wisely. An increase in 'book value' is no guarantee of that.
When i'm investing $ into any company, I want a return that GROWS my investment and not a return ON my investment. Know the distinction? I don't want dividends in my hand that takes out the control of my investment because i'm stuck with that income. I much rather choose when I want the income by selling the portion of the shares when needed (and thus, realising the tax free capital gain).
Being 'stuck with ones income' seems a very first world problem to have! Some companies have 'dividend reinvestment plans'. Those allow your dividend to be immediately reinvested and become available to help future growth. One way out of your problem SBQ?
Technically, realising a capital gain is not normally counted as income. You are free to do this at any time.
SNOOPY
The thing is, not every investor is a big investor with a huge bucket of funds to invest. Some of us are insignificant investors on the grand scale of things. We are simply trying to make the best of what money we do have, rather than watch it depreciate in the bank. People like me, want and need dividends because DRIP is the number one way we can build up our shareholding. Of course down the track we hope to make a capital gain should we ever decide to sell, but that’s not our focus. I get that for people like you, that seems ridiculous, but it works for me. I’m sure there are many other very small investors out there who it also works for.
Having said that, even for big investors there are proven advantages of dividends, as others here are pointing out, but you seem hell bent on trying to prove them wrong. Why does it bother you? If you don’t like dividends don’t invest in companies that pay them. It’s not rocket science.
I'm hell bent where the whole investment industry is pretty much hell bent on dividend payment programs without regard of the direction of the company (if they look for expansion or not). It bothers me that there's a bias by NZ investors to expect a dividend payment regardless of the type of company they want to invest in. It's prevalent in the brochures of NZ brokerage firms, etc. I wish there was more to choose for companies that focus more on raising book value but as i've enquired with local investment advisers, they tell me there's not such funds that operate like Berkshire Hathaway. While people like myself that question why seem to get the silly "this is not Kansas attitude" by Snow Leopard's response.
at the Donald Trump school of Tact & Diplomacy?
But you are not in Kansas anymore.
Your focus on so called 'tax efficiency' and 'book value' means you are missing out on the broader range of possibilities to maximise your total returns, but probably best you stick with your prejudices rather than learn something new.
Please elaborate the 'broader range of possibilities to maximise the returns' ??? I'll reiterate my past post. "I want a return ON the investment and NOT a return OFF the investment by receiving dividends". Because the cash that comes as dividends creates a problem, where else would the shareholder maximise their returns? They're not Warren Buffet where they can accumulate the dividends and able to seek and buy out other investments. As I keep saying i'm not against dividends for the investors that seek regular incomes. That's all fine but what about those that seek capital gains for the 20 or 30 year growth? What is there to learn when the whole investment community in NZ is hell bent on issuing dividends?
By the way, these concepts existed WELL before Donald Trump was born.
I love dividends, there is nothing like a nice fully imputed divvy hitting your bank account, in fact my only true long term holding is HLG which also happens to be one of the best divvy stocks on the NZX.
That's great! and I want to be clear, i'm not all against dividends. It seems to fit a lot of investors that want a routine income stream. No problem. But not everyone is like that and like myself, I would prefer the capital gain on the share price.
As what Snoopy has been replying, he hasn't given up and people would be a fool to believe everything is that concrete. Such as the ICA credit is not always a fully imputed 1 for 1 to the shareholders. IRD's guidebook below is very complex and like not every year will have the same 1 for 1 ratio and factors like years where the company has a loss affects the credit.
https://www.ird.govt.nz/topics/income-tax/imputation/eligibility-for-imputation-grouping
Don't forget, any company that doesn't get the ICA, the default will be RWT on the dividends they receive. NOT every NZX company is free of RWT on the dividends by having ICA nor being fully imputed.
If I wanted a dividend income stream or DRIPs, I would choose the company that fits the sector - ie utilities or real estate REITS etc. I'm certainly not being tax efficient under the NZX that is overly focused on dividends when I could buy real estate with capital gain that is tax free. By all means, someone show me where Auckland real estate has not held up well over the NZX from a tax minimisation perspective?
justakiwi
25-05-2019, 02:19 PM
So, as I said before, that’s fine. You buy into companies that don’t pay dividends and leave the others for us then. Find investments that fit your brief, and if they don’t then don’t buy. I want dividends and DRIP right now, so won’t be buying into companies that don’t provide this. You can’t expect companies to change the way they operate just to suit you.
I'm hell bent where the whole investment industry is pretty much hell bent on dividend payment programs without regard of the direction of the company (if they look for expansion or not). It bothers me that there's a bias by NZ investors to expect a dividend payment regardless of the type of company they want to invest in. It's prevalent in the brochures of NZ brokerage firms, etc. I wish there was more to choose for companies that focus more on raising book value but as i've enquired with local investment advisers, they tell me there's not such funds that operate like Berkshire Hathaway. While people like myself that question why seem to get the silly "this is not Kansas attitude" by Snow Leopard's response.
So, as I said before, that’s fine. You buy into companies that don’t pay dividends and leave the others for us then. Find investments that fit your brief, and if they don’t then don’t buy. I want dividends and DRIP right now, so won’t be buying into companies that don’t provide this. You can’t expect companies to change the way they operate just to suit you.
So as I said before, I can't buy listed NZ companies with the emphasis of capital gain and instead, find only those with a bias towards paying dividends. If there are any, they're not very good and too risky. From a tax advantage point of view, that makes investing in NZ real estate to be the winner.
justakiwi
25-05-2019, 04:06 PM
OK, so why not accept the dividends and make them work for you with DRIP as SNOOPY suggested? Surely you can’t object to obtaining extra shares this way. I know I’m a beginner who knows next to nothing, but I honestly don’t understand why this is such a huge problem for you.
So as I said before, I can't buy listed NZ companies with the emphasis of capital gain and instead, find only those with a bias towards paying dividends. If there are any, they're not very good and too risky. From a tax advantage point of view, that makes investing in NZ real estate to be the winner.
Snoopy
26-05-2019, 09:19 AM
As what Snoopy has been replying, he hasn't given up and people would be a fool to believe everything is that concrete. Such as the ICA credit is not always a fully imputed 1 for 1 to the shareholders. IRD's guidebook below is very complex and like not every year will have the same 1 for 1 ratio and factors like years where the company has a loss affects the credit.
https://www.ird.govt.nz/topics/income-tax/imputation/eligibility-for-imputation-grouping
Don't forget, any company that doesn't get the ICA, the default will be RWT on the dividends they receive. NOT every NZX company is free of RWT on the dividends by having ICA nor being fully imputed.
SBQ, you make a good point here on RWT. The NZ tax system is set up so that we only pay tax on profits once. But if the company has not paid tax on the profits that underlie the dividends they pay shareholders? Then shareholders will be hit with resident withholding tax on that dividend. This compares unfavourably with the alternative scenario of the company withholding their dividend: That would result in shareholders retaining their 'pre tax dividend value' within the company. There are ways around this though:
1/ If in previous years, a company has not paid out all of their earnings as dividends, then they can have a 'positive imputation credit balance' on the books. This means they can still pay a fully imputed dividend on this years profits that have not been taxed, by utilising imputation credits accumulated in previous years.
2/ A company can pay tax in advance of it being due, in order to build up the imputation credit account. Effectively that means a company is using profits from future years to pay this years dividend fully imputed. This is a more risky strategy that 1/, because future profits are not guaranteed.
There is an additional tax effect 'at the margin' when the company tax rate, at 28%, is lower than your own marginal tax rate. If your own marginal tax rate is 30%, then you might argue that any dividend in shareholders hands will incur an extra tax bill of the difference (30%-28% = 2%). And that 2% difference becomes RWT on top of the imputation tax credit you can claim. That 2% is extra tax you would not have paid if the company had simply kept their earnings and not paid it out as a dividend to you. This is just one alternative way of looking at your tax bill though.
Well above average income earners, those on $150,000+ for instance, still pay much lower rates of tax on the initial tranches of their income. IIRC all taxpayers pay only 15% tax on their first $15,000 worth of income. The rate of tax then gets progressively higher and the highest rate of tax only kicks in once you reach the $70k (? from memory) mark. So even those on $150k have an actual tax bill rate rather lower than their marginal tax rate. This means you can offset that incremental 2% increase on RWT from NZ dividends against tax due on other income that is not taxed at source.
Another way to get around this 'extra RWT' is to put all your investments in PIE funds. These are taxed at 28% even for the highest earners. However, all PIE entities that I know of have management fees that will wipe out most if not all of your 'tax savings'.
In summary, resident withholding tax (RWT) is an issue. But it is an issue at the margin for shareholders in companies that generate taxable profits. It doesn't undermine the general principle of imputation credits making the investment treatment of dividends tax neutral.
SNOOPY
OK, so why not accept the dividends and make them work for you with DRIP as SNOOPY suggested? Surely you can’t object to obtaining extra shares this way. I know I’m a beginner who knows next to nothing, but I honestly don’t understand why this is such a huge problem for you.
You've missed my point, but that's ok (beginners aren't expected to know). When I look at buying shares in a company, I view it as being a partner of the business. Therefore, the partner's 1st intention should not be to extract dividends from the business, and certainly when the business seeks capital for growth, why elevate un-necessary capital costs that are detrimental to the shareholders (or as I say, to the partnership?). In another way if I was a partner in a business, I would prefer the business to keep the after tax cash and use it for growing the business. Not to expect that cash to be put in my pocket year after year. Then after many years, when the business has fully matured with no growth for expansion, THEN the dividend card be played.
justakiwi
29-05-2019, 05:55 PM
I do do understand what you are saying and for start up/emerging companies I would agree with you. But once that company is established I would personally want to get some income from it - either by way of cash dividends or by way of DRIP. The difference between your desire and mine is (and yes I’m making an assumption) is because we are poles apart in terms of our individual financial position/situation. Your investment goals are different to mine, for obvious reasons.
Does any business/company actually ever reach the point where no more growth is possible? How do you make your call on when a company has reached that point?
You've missed my point, but that's ok (beginners aren't expected to know). When I look at buying shares in a company, I view it as being a partner of the business. Therefore, the partner's 1st intention should not be to extract dividends from the business, and certainly when the business seeks capital for growth, why elevate un-necessary capital costs that are detrimental to the shareholders (or as I say, to the partnership?). In another way if I was a partner in a business, I would prefer the business to keep the after tax cash and use it for growing the business. Not to expect that cash to be put in my pocket year after year. Then after many years, when the business has fully matured with no growth for expansion, THEN the dividend card be played.
If a company is paying a dividend then it must be making a profit. Not all profit is distributed thus leaving a varying % for further expansion.
justakiwi
29-05-2019, 06:17 PM
Yes, but you said above, companies should not pay dividends until they are fully matured with no further room for expansion. My question is (as a beginner who is learning) do companies ever truly get to the point where no further expansion/growth is possible?
If a company is paying a dividend then it must be making a profit. Not all profit is distributed thus leaving a varying % for further expansion.
Yes, but you said above, companies should not pay dividends until they are fully matured with no further room for expansion. My question is (as a beginner who is learning) do companies ever truly get to the point where no further expansion/growth is possible?
Not my statement justakiwi. That was SBQ and I don't agree with him.
justakiwi
29-05-2019, 06:43 PM
Oops! Sorry ;)
Not my statement justakiwi.
Yes, but you said above, companies should not pay dividends until they are fully matured with no further room for expansion. My question is (as a beginner who is learning) do companies ever truly get to the point where no further expansion/growth is possible?
Yes as I mentioned before, if the investor seeks dividends, they choose portfolios the consist of such companies. The likes of utilities, electricity companies where there's a finite limited market share and the companies have been in existence for many decades. This is not the case in NZ where the emphasis is expectation of dividends regardless of the 'type' of business they choose to invest in.
If a company is paying a dividend then it must be making a profit. Not all profit is distributed thus leaving a varying % for further expansion.
I used the example of The Warehoues Group in the past replies. In their early years on the NZX, they too had a 'dividend policy' which was basically a rout to strum up investors. The policy of paying a set dividend rate carried on throughout all the years when they needed capital to expand. It was inevitable that red sheds would open up in every decent size town throughout NZ but during those decades, they funded that expansion through bank loaning it to issuing more shares. Yes some years where they had a loss they still paid the dividend (done by borrowing additional funds and floating more shares to pay the out goings to shareholders).
If the board of directors don't seem to have the same alignment view with their shareholders, then I must say they're not worthy of a company to invest in.
Snoopy
30-05-2019, 09:23 AM
Yes as I mentioned before, if the investor seeks dividends, they choose portfolios the consist of such companies. The likes of utilities, electricity companies where there's a finite limited market share and the companies have been in existence for many decades. This is not the case in NZ where the emphasis is expectation of dividends regardless of the 'type' of business they choose to invest in.
I would like to see these two lists of 'dividend companies' and 'growth companies'.
My investment in NZ's electricity gentailers has yielded very high growth over the last three years. I am talking a capital gain of 50% plus dividends. That sort of return would be very satisfactory for a growth company, but it has been achieved by investing in a boring no growth industry. Yes the electricity market in terms of MWh sold has barely grown in that time.
Contrast this to my investment in Sky City which is plugged into NZ's tourism growth boom. These have fallen in value by 20% over the same period, even though dividend payments have been maintained to keep me happy.
SNOOPY
Lego_Man
30-05-2019, 03:20 PM
I would like to see these two lists of 'dividend companies' and 'growth companies'.
My investment in NZ's electricity gentailers has yielded very high growth over the last three years. I am talking a capital gain of 50% plus dividends. That sort of return would be very satisfactory for a growth company, but it has been achieved by investing in a boring no growth industry. Yes the electricity market in terms of MWh sold has barely grown in that time.
Contrast this to my investment in Sky City which is plugged into NZ's tourism growth boom. These have fallen in value by 20% over the same period, even though dividend payments have been maintained to keep me happy.
SNOOPY
What's been the EPS growth of the gentailers though? How much of the share price appreciation has been a P/E ratio expansion?
What's been the EPS growth of the gentailers though? How much of the share price appreciation has been a P/E ratio expansion?
BINGO! Someone that knows the importance of shareholder value. I'll reiterate, when NZ listed companies start hiding figures that really matter (ie EPS) or making investors manually calculating such figures.. then that tells me they're selling something else. Over in N. America, EPS is a major metric # in quarterly reporting. P/E also matters in value investments, but in NZ, it's of little relevance due to NZ's small size (when the company is the ONLY company in the NZ industry, then you can't go by any other benchmark). I also wonder in NZ finance news, why they don't report the performance of the companies in terms of EPS? On the radio they're great at saying how much sales has been achieved or growth in some area, etc. but why not figures that really matter like EPS?
Trickery comes in all forms and the dividend policy is a good way to mask or exaggerate things for shareholders. I see directors of such companies stringing along or implementing the idea that as long as shareholders get the dividend, they can do other things that would be detrimental to the company, and when things get so bad that a dividend can't be paid, well then that's too late.
Snoopy
30-05-2019, 07:00 PM
What's been the EPS growth of the gentailers though? How much of the share price appreciation has been a P/E ratio expansion?
For 'Contact Energy', it depends on which way you look at things:
eps Growth
I calculated 22.0c eps for FY2015 and 18.3c eps for FY2018. So all of the the share price gain has been in
PE expansion!
dps Growth
If you accept 'anticipated dividend yield' is the motivation for the dividend hound to chase a share, I observe something rather interesting. Note I have adjusted the dividends to the after tax money received because not all the dividends below were fully imputed
Dividends Paid over FY2016: 15c x (0.72) + 11c x (0.9237) = 21.0c
Dividends Paid over FY2019: 19c + 16c x (0.8239) = 32.3c
That means from an 'after tax dividend' point of view (+54%) the increase in dividend received is very closely associated with the 50% increase on share price. There was no contribution to the capital gain from PE expansion!
SNOOPY
Snoopy
31-05-2019, 11:17 AM
For 'Contact Energy', it depends on which way you look at things:
eps Growth
I calculated 22.0c eps for FY2015 and 18.3c eps for FY2018. So all of the the share price gain has been in
PE expansion!
dps Growth
If you accept 'anticipated dividend yield' is the motivation for the dividend hound to chase a share, I observe something rather interesting. Note I have adjusted the dividends to the after tax money received because not all the dividends below were fully imputed
Dividends Paid over FY2016: 15c x (0.72) + 11c x (0.9237) = 21.0c
Dividends Paid over FY2019: 19c + 16c x (0.8239) = 32.3c
That means from an 'after tax dividend' point of view (+54%) the increase in dividend received is very closely associated with the 50% increase on share price. There was no contribution to the capital gain from PE expansion!
In light of what I have said above, I think it is interesting to report what the then new chairman Sir Ralph Norris said about what he planned to do with cashflows once assuming office after the Origin Energy sell down. This period covers the circa 50% increase in value of Contact Energy shares since the former cornerstone shareholder Origin Energy sold out. From p6 AR2016
"We have three choices for the cash flow: distribute to shareholders, pay down debt or reinvest capital in maintaining and growing the business. We understand that that investors are looking at Contact as a company with a strong dividend yield and so we continue to have a dividend policy that focuses on returning cash to shareholders."
This statement from the Chairman couldn't be more clear in that he sees Contact as a dividend generating company. Over the subsequent time, Contact has indeed continued to pay out very generous dividend to shareholders. But the return that shareholders have accumulated from those dividends has been dwarfed by the capital growth in the share price over the same period. And that shows that even a determined 'dividend payer' can take a strong place in a 'growth portfolio'.
I should add that I invested in Contact for the dividend, but have been pleasantly astonished at how the share price has grown since Origin sold out.
SNOOPY
kiora
04-05-2021, 05:46 AM
Be aware of Management particularly CEO
"Yahoo Finance
Buffett: The 'biggest danger' a company faces is picking the wrong CEO
Julia La Roche
Julia La Roche·Correspondent
Tue, May 4, 2021, 5:28 AM
BRK-A
+2.37%
BRK-B
+2.15%
Warren Buffett, the CEO of Berkshire Hathaway (BRK-A, BRK-B), says the most significant risk factor a company faces is selecting the wrong CEO.
The 90-year-old investing legend said that he's "looked at a lot of businesses, and that's what's caused the number one problem," and it's not listed in securities filings.
"The biggest danger, they have that section in the prospectus called…[certain risk factors]. The number one risk factor, you never see it, the number one risk factor is that this business gets the wrong management, and you get a guy or a woman in charge of it that are personable, the directors like them, they don't know what they're doing, but they know how to put on an appearance. That's the single biggest danger," Buffett said during Berkshire Hathaway's annual meeting of shareholders on Saturday.
Later in the meeting, Buffett said the main thing for Berkshire's board is to "preserve the culture" and if they "get the wrong person as the CEO, you can do something about it."
"That's the biggest risk a board has, is if you pick the wrong CEO and I've been on 20 boards, and this happened more than once. Sometimes it's a terrible problem to get rid of them. Years go by and if a dissident comes in, it's one thing, but if you just sit there and you collect your $300,000, $400,000 a year, and the chief executive keeps proposing you get an increase from time to time — it's worse yet if he's a nice person doing his best."
CEO mythology
Buffett also said he might write in a future annual shareholder letter about the topic of myths perpetuated by CEOs.
"[One] of the subjects I might write about in one of the future annual reports is the problems caused by the myths that people have about their own organization. And I've seen that so many times in various forms," Buffett said.
According to Buffett, this mythology problem has "to some extent become accentuated in the last 20 or 30 years, because the CEO often works with the investor relations and they say, 'Well, we have to have constant contact with the analyst community.' And of course, so they go on every couple of months, and they repeat certain things about their company, and it becomes part of, sort of the catechism. And nobody's going to go on two months after the CEO has said one thing and say, 'Well, actually, that really isn't the way.' They're not going to contradict themselves or change course."
Without mentioning companies by name, Buffett said there's "a lot of mythology that gets handed down from one CEO to the next."
"Can the succeeding CEO say the guy that picked him was on the wrong course or he's been telling you something that isn't really quite true? He can't do it. And then he starts repeating it and it leads to enormous errors, but it's hard to tell the story without giving examples and I don't like to give examples," Buffett added.
Buffett's long-time business partner, Berkshire Hathaway's vice chairman Charlie Munger weighed in: "[What's] really interesting is the way you prattle out all the time. You're pounding back in, even if it's wrong."
Julia La Roch
"The number one risk factor, you never see it, the number one risk factor is that this business gets the wrong management, and you get a guy or a woman in charge of it that are personable, the directors like them, they don't know what they're doing, but they know how to put on an appearance. That's the single biggest danger,"
Most definitely and perhaps this answer the question in my other posts why shareholders tend to 'expect' dividend payments from the mgt team / directors of the company. Perhaps it could be many decades of failed managements of NZ listed companies that it's kinda painted the investment area that it's probably not such a bad idea to get some form of payment than risk losing 100% of the investment.
I've been living in NZ long enough (25+ years) and see 1 example after another where mgt has failed. You know, 1 CEO or CFO or director sacked from their job and it's not just the smaller companies that behave this way, but also the larger NZ listed ones. I remember NZ Telecom looking for a CEO replacement when they hired a guy from overseas with a massive pay package ; his glorious idea was to change the to what we have Spark.
What is clear about investment rules is what happens in NZ is clearly different to what happens abroad. So what Warren Buffet says is of moot interest to the NZ investor (or so that's my perception I see here). Likewise with the difference in taxation where Kiwi Savers funds pay taxes every year + FIF / FDR on US listed equities (and then to investors at RWT) or the PIE rate. Whereas N. America, savers there pay no taxes to maximise compound growth and can control their rate of tax they pay at retirement (for which senior incomes are low as they quit their day job) are much less. I'm not at all comfortable of the NZ arrangement that investors in their 20s - 50s should be paying taxes on investment gains when those are the years they are "most productive". The deferring of taxing over in US/Canada is a definitely win for the middle class.
epower
30-05-2021, 12:20 PM
Hi OldTech,
My rules are similar to what the book "Warren Buffett and the Interpretation of Financial Statements" alludes to.
I’m looking for companies that show a consistent 5+ year trend of growth in revenue, earnings. They have low/no debt relative to profits and they have a ‘moat’ or at least be the/one of the preferred in its field (eg Auckland Airport has a big competitive advantage to say Wellington or Christchurch airport).
I use a discounted dividend/cashflow model in which I want to get a forecasted 10 year 14.4% minimum return (quadruple my money in 10 years).
My rules for my portfolio is that my stock picking capital is only 1% of my overall investment portfolio (we have a few hundred thousand in rental property and KiwiSaver index funds and another non KiwiSaver index fund) so portfolio gets topped up each Jan 1st or I take any cash in the portfolio and dump into mortgages or index funds. This equates to a few thousand of a portfolio in sharesies I’m currently running. This allows me to pursue my hobby of stock picking without putting the family financial plan at risk because of a conviction I have on a particular company.
Several years ago before meeting my wife or having children, I had a portfolio in the vicinity of $80k which was being used to accumulate as a house deposit. My rules weren’t very stringent and I was mainly focusing on the ASX. I had 60% from memory of my portfolio in Slater & Gordon and that completely tanked. I'd built it up from a few wins though which balanced out (Credit Corp, Supply Network) I learnt my lesson and am now sticking to the NZX which I know companies better (tax benefits too). I now cap my weighting of a particular stock to 30% on purchase and if it goes over 40% of portfolio (including cash on the side) I sell down to get back within 30-40% I've learnt no matter how convinced I am that I’m right, picking a company and betting big on it sometimes doesn’t work. I’m not bulletproof so a bit of a limit and diversification helps.
My wife is also a good sounding board, she knows little about stock picking, fundamental analysis etc. if I approach her and say oh by the way I’m just going to take a grand or two out of out mortgage and bet it on Oceania Healthcare or Mainfreight she certainly tells me where to stick it so my impetuous nature when I see a deal gets brought back into the wider context. Finding someone like this for all of us (whether your spouse, child, family friend who’s adept at business and is conservative) I recommend I’m a far better investor because of that outside influence.
My rules as far as companies go it’s a mix of a Buffett/Munger and Peter Lynch type approach. Find a business I understand (takes out banks, insurance, energy utilities, biotech, technology) take out businesses growing too slow (listed property, mature industries) and non profitable ones (hard to value) really only leaves me with a handful of NZX companies to choose from. Choose a management that’s got skin in the game and has shareholders as best interest (whittles it down even more).
Then just hold onto them for a long time until something catastrophic happens to the underlying business that makes it different from the initial reason to buy it, the management becomes people I don’t want to do business with or the growth grinds to a halt and better alternatives come along.
So those are my rules. All in a valuation/mental checklist I keep in my head (easy when there are less than 10 companies) and just loosely follow the business news but mainly read NZX announcements and annual reports.
Thought about venturing back into ASX for more opportunities and growth companies but figure it's 1% odd of investment net worth (excluding family home), it gives me pleasure following companies so scratched my itch without overtaking my life with a demanding career and family life.
Currently I’m holding Oceania, Summerset, Asset Plus, NZ Cash fund (thanks Snoopy! As was NZ Bond Fund). Everything else on my watchlist (Mainfreight, Auckland Airport, Ryman, Ebos, F&P Healthcare, Goodman Property) is a bit too expensive.
fungus pudding
30-05-2021, 01:09 PM
My only rule - keep stacking up income.
Biscuit
30-05-2021, 06:15 PM
I have no consistent rules. I collect a wide range of companies I like. Generally I like companies that generate lots of positive cashflow, and have a clear global growth strategy but I also own companies focused on NZ (but if they can't generate cash, I'm not interested, so maybe one rule).
I have no consistent rules. I collect a wide range of companies I like. Generally I like companies that generate lots of positive cashflow, and have a clear global growth strategy but I also own companies focused on NZ (but if they can't generate cash, I'm not interested, so maybe one rule).
I don't have strong FA skills....so....
1) I consider if the companies will still be around in 5-10 years. I don't want to lose my capital. I consider the business the sector they are operating in. Will it still be there in 5, 10, 20 years ? High level consideration. And have made a few mistakes....non serious so far.
2) Although my focus is dividend...I will buy companies that are more risky and don't pay a dividend.
These are always a much smaller % of my portfolio (e,g, Serko: 2.2 %) this is annoying at times.
3) I get nervous if anything is much more than 10% of my portfolio...Currently nothing is but HGH has been in the past...hopefully again in the future.
4) I read everything I can find on a company. All the share trader stuff (Gotta be careful with those who flip-flop eloquently or who are ramping), any reports I can get from Craigs..others.
5) I always try to always buy on a dip. Hate buying and having it drop. This requires patience. Put the order in and forget about it. Don't chase the price up.
6) I try to cover many sectors....and I think this has worked out OK....but is probably a fortunate outcome of opportunistic purchases rather than a deliberate plan.
Hold about 40 stocks I guess. Takes a lot of work to keep up with. So as a few bonds are being repaid, I am considering adding to existing holdings rather than adding new ones.
Having said that...I did buy $50K of Spark a few weeks ago..... Fingers crossed.
Good thread...I'll add as I think through my ad hoc process.
Key issues in my books when evaluating investments:
1) Diversification is bad!:
The more stocks you own, the more you go towards the average returns of the market index. Naturally this is not possible to buy every stock and why would anyone? Nearly ALL registered managed funds (not hedged funds) operate in a way of diversification to the max. So how many stocks in a portfolio one should hold? Well to answer this question I look to Warren Buffet & Charlie Munger's view. Here's is word:
https://finance.yahoo.com/news/charlie-munger-isnt-big-diversification-161820502.html
He also describes the problem of fund managers thinking they're hot shot for merely doing nothing (because any dummy can do it... it's not a skillful move). I see direct parallels with how NZ Kiwi Saver funds operate this way by taking contributions, use their US broker account (which pays no commissions on trades) and buys say the Vanguard ETF S&P500 'ticker VOO' which has a 0.08% pa mgt fee but at the NZ end, they tack on a lofty 10 or 20 times figure on that % for the Kiwi Saver investors.
2) Hold USD - after all it's the global trading currency and the standard metric that everything is compared to. So if you're going to buy stocks traded on the US exchanges (of those that are global companies that are listed there) - they only accept USD. Keep it in USD and don't try to exchange it back to NZD etc. Canadian brokers have long provided dual currency reporting for their clients to avoid the need for exchange rate conversions.
3) Tax TAX TAX! matters big time. You look at all these fancy prospectus from fund managers to corporate listings on the NZX. They throw in figures like EBITDA (which again, Munger claims to be the most stupid thing ever taught in business class at universities around the world).
https://finance.yahoo.com/news/charlie-munger-explains-called-popular-earnings-measure-horror-squared-164228068.html
NZ equity market maybe 1% of the global market? Why restrict your investment choice to NZ and carry on higher risk ; thinking you're doing a great job? When you look at investments around the world, you have to factor issues like taxation for which EBITDA distorts things by excluding it. BTW, when Berkshire does their annual report, they report figures NET of taxes.
There's a lot of factors I can pick out - but then again I can assure you most people that contribute to Kiwi Saver have never heard of Warren Buffet before. Even financial advisors i've spoken to in NZ don't care about what Buffet says as 'they are beyond the scope of how NZ residents can invest'.
Biscuit
30-05-2021, 09:46 PM
Key issues in my books when evaluating investments:
1) Diversification is bad!:.....
I wouldn't go overboard on that idea. We all try to select companies we think are going to do well and allow us to outperform the market - that's part of why we invest in shares rather than just funds. Diversification is is just acknowledging that no matter how good you are, you are not a perfect selecting machine.
I wouldn't go overboard on that idea. We all try to select companies we think are going to do well and allow us to outperform the market - that's part of why we invest in shares rather than just funds. Diversification is is just acknowledging that no matter how good you are, you are not a perfect selecting machine.
Diversification is a lame excuse by all the fund managers, that they don't know how to pick certain stocks, that will outperform the market so instead, they buy everything up and call themselves an expert because by chance, their fund portfolio marginally beats the market index return. and here we are, countless of individuals (like yourself) thinking they can do a better job than the fund managers can do.
As both Buffet & Munger have expressed over the decades, you have a whole industry in Wall Street that preaches this kind of behaviour; those in industry thinking they can beat the market returns for their clients. But do you know what's worse? The NZ financial industry preaching this nonsense to a higher degree. The FMA says trading derivatives is bad (like it's a sin out of the Bible and no NZ resident should be practicing that habit if they have an overseas foreign brokerage account because they aren't 'Nanny' licensed approved by the FMA). Instead of educating the public, they rather POLICE the public.
If you're going to go the diversification route ; just buy an index ETF like the S&P500. But even here in NZ, there's a habit of gouging by fund managers that do nothing more than just buying the S&P500 and jack up the management fees. For eg the Vanguard ETF range has an average mgt fee of 0.08% per year - lowest in industry. Yet Kiwi Saver funds buy their VOO, then then come out charging like 0.5% to as high as 1% a year for merely doing??? C'mon FMA, why aren't you going after these funds in NZ?
I have friends in both Singapore and Sweden. Their gov'ts don't nanny them on the dangers of investing overseas. They freely buy & sell stocks and options on their US based brokerage accounts and side on education being the key to achieving financial freedom. A LOT more can be done in NZ but gov't isn't serious and doesn't seem to care ; keep the $ flow into NZ real estate.
Biscuit
31-05-2021, 10:40 AM
Diversification is a lame excuse by all the fund managers, that they don't know how to pick certain stocks, that will outperform the market so instead, they buy everything up and call themselves an expert because by chance, their fund portfolio marginally beats the market index return. and here we are, countless of individuals (like yourself) thinking they can do a better job than the fund managers can do.
As both Buffet & Munger have expressed over the decades, you have a whole industry in Wall Street that preaches this kind of behaviour; those in industry thinking they can beat the market returns for their clients. But do you know what's worse? The NZ financial industry preaching this nonsense to a higher degree. The FMA says trading derivatives is bad (like it's a sin out of the Bible and no NZ resident should be practicing that habit if they have an overseas foreign brokerage account because they aren't 'Nanny' licensed approved by the FMA). Instead of educating the public, they rather POLICE the public.
If you're going to go the diversification route ; just buy an index ETF like the S&P500. But even here in NZ, there's a habit of gouging by fund managers that do nothing more than just buying the S&P500 and jack up the management fees. For eg the Vanguard ETF range has an average mgt fee of 0.08% per year - lowest in industry. Yet Kiwi Saver funds buy their VOO, then then come out charging like 0.5% to as high as 1% a year for merely doing??? C'mon FMA, why aren't you going after these funds in NZ?
I have friends in both Singapore and Sweden. Their gov'ts don't nanny them on the dangers of investing overseas. They freely buy & sell stocks and options on their US based brokerage accounts and side on education being the key to achieving financial freedom. A LOT more can be done in NZ but gov't isn't serious and doesn't seem to care ; keep the $ flow into NZ real estate.
I agree with you up to a point. Just buying an index is pretty lame. But there is a middle ground between buying an index and buying just a couple of companies you think you know everything about. I have 20-30 NZX companies that I know more-or-less something about and have some sort of holding and half a dozen in which I have large holdings.
kiora
02-06-2021, 08:56 AM
Pretty sound advice here
"The 60-30-10 Rule Of Investing"
https://seekingalpha.com/article/4431903-the-60-30-10-rule-of-investing?mail_subject=must-read-the-60-30-10-rule-of-investing&utm_campaign=nl-must-read&utm_content=link-0&utm_medium=email&utm_source=seeking_alpha
Panda-NZ-
02-06-2021, 10:49 PM
I agree with you up to a point. Just buying an index is pretty lame. But there is a middle ground between buying an index and buying just a couple of companies you think you know everything about. I have 20-30 NZX companies that I know more-or-less something about and have some sort of holding and half a dozen in which I have large holdings.
People need to know about currency risk. Otherwise I agree.
Investing overseas is good for NZ as it brings new money in when the gains are realised etc.
iceman
02-06-2021, 11:33 PM
People need to know about currency risk. Otherwise I agree.
Investing overseas is good for NZ as it brings new money in when the gains are realised etc.
Buying something like the S&P500 takes care of the currency risk. 40% of the revenue of the companies in that index is from outside of North America. This fact is often overlooked.
Panda-NZ-
02-06-2021, 11:52 PM
Most of the smartshares investors are sitting in non currency hedged funds which will lead to losses when the currency increases.
It's not really explained at all how that works to people who are novices.
I agree - currency exposure is a big deal and in the past 2 decades, we've seen huge swings in currencies. It's not really that complicated. To the investor all that matters is how much gain they make WHEN the distributions are brought back to NZ (exchanged to NZD) to be spent.
kiora
23-07-2021, 04:41 AM
Protecting against future potential inflation
"“Though we expect the recent rise in inflation to ease, the outlook for inflation remains uncertain and therefore building inflation protection into portfolios is an appropriate step for investors to be taking now. This includes investing in commodities, private market infrastructure, and stocks with pricing power, as these areas tend to perform better in an inflationary environment and will help to preserve purchasing power over the long term," said UBS Americas and co-president of UBS Wealth Management Tom Naratil."
https://finance.yahoo.com/news/heres-how-investors-are-trying-to-make-money-during-high-levels-of-inflation-184847675.html
iceman
23-07-2021, 08:22 PM
Protecting against future potential inflation
"“Though we expect the recent rise in inflation to ease, the outlook for inflation remains uncertain and therefore building inflation protection into portfolios is an appropriate step for investors to be taking now. This includes investing in commodities, private market infrastructure, and stocks with pricing power, as these areas tend to perform better in an inflationary environment and will help to preserve purchasing power over the long term," said UBS Americas and co-president of UBS Wealth Management Tom Naratil."
https://finance.yahoo.com/news/heres-how-investors-are-trying-to-make-money-during-high-levels-of-inflation-184847675.html
Interesting kiora. I read a similar article somewhere in NZ media recently, where they also talked about companies with "pricing power" being the way to go. But much to my surprise, they specifically said gentailers were not such companies. I think due to concerns about Government intervention.
But then I thought, well what industry can avoid Government intervention, such as minimum wage increases, landlords tax changes,extra holidays, OSH regulations, shipping costs, border closures. The list is endless. I have no idea what they mean with "pricing power" and I doubt anyone else knows either
Interesting kiora. I read a similar article somewhere in NZ media recently, where they also talked about companies with "pricing power" being the way to go. But much to my surprise, they specifically said gentailers were not such companies. I think due to concerns about Government intervention.
But then I thought, well what industry can avoid Government intervention, such as minimum wage increases, landlords tax changes,extra holidays, OSH regulations, shipping costs, border closures. The list is endless. I have no idea what they mean with "pricing power" and I doubt anyone else knows either
It's simple. Basically a company that has the commanding power to change the price of their product UP, without losing a significant market share where their products are sold. So we're looking at inelastic goods & services here. I would say Apple would be one company that fits in that category as they rarely discount (nor can any individual haggle discount on their products sold at the shops) and there seems to be no shortage of people upgrading to buy what they have new.
If you're really worried about inflation and not looking for a significant return, just buy physical gold.
Snoopy
23-07-2021, 10:40 PM
Interesting kiora. I read a similar article somewhere in NZ media recently, where they also talked about companies with "pricing power" being the way to go. But much to my surprise, they specifically said gentailers were not such companies. I think due to concerns about Government intervention.
But then I thought, well what industry can avoid Government intervention, such as minimum wage increases, landlords tax changes,extra holidays, OSH regulations, shipping costs, border closures. The list is endless. I have no idea what they mean with "pricing power" and I doubt anyone else knows either
I regard 'pricing power' as the ability to increase your net profit margins at above the rate of inflation. It is not difficult to calculate what the net profit margin for a company is over successive years ( Normalised NPAT / Sales ).
As you have noted Iceman, there are many potential things that can stop a company raising prices at any particular time, and you have listed many of them. But if they are 'one off' shocks', then you should look through those. Think of a one off shock as helping hand to acquire an otherwise very good company at a discount. The fact that a company can raise prices in excess pf inflation, more often than not, is what you are looking for. Ultimately the good years will more than cancel out any downward profit wobbles.
SNOOPY
kiora
31-08-2021, 11:55 AM
"While alternatives exist, Neilson believes they often display fewer of the "seven powers" when compared to the tech giants. These "seven powers" can be described as:
Holding a cornered resource
Enjoying economies of scale
Benefitting from network effects
Offering a product that has high costs of switching
Is a powerful brand, enhancing its ‘spread’ above costs
Having a persistent process enhancement path
Nurturing innovative opportunism
https://www.livewiremarkets.com/wires/how-the-legendary-kerr-neilson-invests-now
"While alternatives exist, Neilson believes they often display fewer of the "seven powers" when compared to the tech giants. These "seven powers" can be described as:
Holding a cornered resource
Enjoying economies of scale
Benefitting from network effects
Offering a product that has high costs of switching
Is a powerful brand, enhancing its ‘spread’ above costs
Having a persistent process enhancement path
Nurturing innovative opportunism
https://www.livewiremarkets.com/wires/how-the-legendary-kerr-neilson-invests-now
Thats a great article - thanks kiora. Interesting as there was a recent podcast from the Economist that talked about Flutter also and interviewed their CEO. They have a great story and seem to be leading in relatively new markets. Shame they are only on the London stock exchange - not one that I can access, otherwise would be worth a consideration. Its interesting when certain companies come recommended through different sources
surfnturf
06-09-2021, 09:44 AM
As an investor I believe that is important to keep things simple, so IÂ’ll give one rule that should be considered before any money is either made or lost.
1: Always remember that personal development will yield greater returns than any monetary investment.
Life is about character building and inspiring others to do better and be better.
fungus pudding
06-09-2021, 10:22 AM
As an investor I believe that is important to keep things simple, so IÂ’ll give one rule that should be considered before any money is either made or lost.
1: Always remember that personal development will yield greater returns than any monetary investment.
Life is about character building and inspiring others to do better and be better.
Hallelujah brother!
kiora
10-09-2021, 05:49 AM
https://www.livewiremarkets.com/wires/money-makes-money-10-investing-tips-from-hamish-douglass
"Money makes money: 10 investing tips from Hamish Douglass
Matt Buchanan
MATT
BUCHANAN
Livewire Markets
FOLLOW
CONTACT
In the recent 100th episode of his podcast Inside The Rope, David Clark was joined by special guest and long-time supporter, Hamish Douglass of Magellan (Douglass first appeared in the second episode of ITR in 2017.)
In it, Douglass, who was then in London conducting business, was asked for his take on COVID, the reopening, Crypto, Robin Hood stocks, inflation, and the ongoing regulatory crackdown in China (all the more interesting given Magellan's well-known stake in Alibaba).
He also offered a short-term macroeconomic outlook.
However, the bulk of the podcast was given over to the investment lessons Douglass has gleaned from the great investors over the course of his singular career, among them Warren Buffett, Benjamin Graham, Phil Fisher, Peter Lynch, and Richard Thaler (under whom he studied at Harvard).
In this wire, I have cherry-picked 10 key investment tips that sprang from Clark's one simple but elegant question:
What behaviours through your career have you learnt or studied from others that have made you a better investor?
HAMISH DOUGLASS: It's a very good question, David. I spent a lot of time studying the great investors of the world, whether it's Phil Fisher, Ben Graham, Warren Buffett, or Peter Lynch asking how have they created these incredible track records.
And you pick up different things from different people, but also in your own experiences, you have to understand that you never stop learning in this game.
And if you think you know everything, that is the point where you really don't know anything. It’s about trying to understand some very complex issues.
You try to predict the future in a future that has rhymes of the past, but always can be different in the future.
There are tools of the trade that I've picked up from people in my own lessons over time that, that I think are important for anyone in investing.
And I'm not sure these are in order of the most important things, but I think they're all important.
#1 The importance of a margin of safety
One, I would say I learned from Ben Graham and his great book Security Analysis was the proposition of a margin of safety. You want to buy assets at less than you think that they're worth in order to incorporate some room for error as things go wrong. And when things go wrong, you want to have a margin of safety.
If you're designing a bridge that can take a hundred thousand tonnes you don't want to set the safety limit at 99,999.
You'd probably want to set the limit materially below the maximum capacity of the bridge to make sure you're never testing that. And that's the same thing in investing.
You want to make sure that you incorporate some room for error in your analysis. And that, that was a very important lesson from Ben Graham.
#2 The circle of competence
I think this is really an important lesson from Warren Buffett and that's something he calls his circle of competence. You don't want to pretend to be an expert in everything because you become a know-nothing investor.
I describe our approach as an inch wide mile deep and very, very clearly defined areas in which we have expertise.
For example, we don't invest in biotech. There can be some great biotech investments, but I would say it's largely outside my area of competence or expertise. I'm not a trained scientist in that area. And we, we want to invest in areas where we really think we have some knowledge and some edge and things we can understand.
I also believe that it comes down to an issue of focus as well.
We're very, very clear at what we do at Magellan. We're very focused on very high-quality companies. High-quality companies aren't going to perform the best every single day of every single month of every single quarter. But, over time, they've got tremendous advantages because they have much lower failure rates.
#3 You have to be prepared to just throw something in the bin
Another thing I learned, and this comes to heuristic biases that a lot of people suffer, is you need to be prepared to walk away from investments.
That's really hard because often you spend an enormous amount of time and effort researching, or you can be in investments that go wrong, and then you start to convince yourself “oh, well, I can make my money back”.
You've got loss-aversion bias, you've got the cost of time, and you really have to be prepared to just throw something in the bin
#4 You have to be prepared to change your mind when the facts change.
You don't want to start refitting an investment case to a new set of facts and believing or convincing yourself nothing has changed.
So, when something's changed, don't be afraid to admit that you're wrong. And that's happened to us numerous times over my career that we've had to face reality and deal with it.
And I find it very therapeutic to actually admit not only to yourself, which is the first one, but to admit publicly that you've made an error.
The nature of the game is to not get focused on that one investment that can go wrong, but to focus on what I call the batting average of the portfolio.
It's easy to focus on, well - Alibaba had a bad year that year, but it's small in the context of the overall portfolio. What you don't want is a whole series of investments that go wrong.
And the batting average is all about having a very consistent win rate and minimising the error rate.
# 5 A medium-term investment horizon
It's really important. It's really easy to say. It's really hard for people to do, to genuinely see out three to five years in the future and not to get caught up in the short term noise about how you're performing relative to the market - or what other people are saying. It's all about being able to see where the ball is headed and to back your judgement over time.
# 6 The power of compound interest
In our view, probably one of the most important lessons is the power of compound interest.
What you want to do is to be able to put your money into investments and effectively let those great investments work for you over time.
You don't care whether Microsoft is underperforming the index in the next six months. It is irrelevant. What is relevant is whether those investments can compound for you over five years, 10 years into the future.
What that rate of return is not about is one-off price changes, what you think the price can do in the next six months or 12 months. It's about whether investments can compound for you.
A quote I often give people is a quote from one of the founding fathers of the United States, Benjamin Franklin, and he said:
“Money makes money. And the money that money makes, makes more money.”
And if you think about it, that's what investing is all about.
It's about taking a longer-term view, backing the right businesses that effectively can compound their earnings at a very, very satisfactory, rate.
We've made many investments we’ve held for over 10 years. And many of these, if we take Microsoft, which is still our largest investment, we invested in 2014. So seven years ago, we took our major position, $28 a share. We have made 10 times our money.
This concept of time and compound interest is at the centre of what we do. You want your money to work for you. And we set ourselves an absolute hurdle over the long-term. After all fees, 9% per annum is our hurdle. The strategy has done better than that over time.
You just keep learning more things all the time by reading and looking and hopefully being very honest yourself, what you get right, and what you get wrong.
# 7 Emotional detachment: What Richard Thaler taught me at Harvard
I actually went to a course at Harvard, that Richard was teaching so I had some firsthand experience with Richard. He's written some wonderful materials on heuristic biases, one of them is emotional attachment.
Some people have the right temperament for investing. And one of the things in the great investors like Buffett and others of the world, they're just very emotionally detached from their decision-making, it's just incredibly objective.
I'm lucky I'm fairly emotionally detached from things, and very driven by the analytics.
Buffet often says that the stocks don't know that you own them, and that's largely the case. And the way to think is that these stocks don't know whether you own them, or you don't own them, so don't get emotional about it.
I'm lucky I'm not that emotional. Maybe that's why I'm an oddball, slightly, here.
# 8 Don’t pick up coins in front of a steam roller: On Robin Hood stocks
Robin Hood-style investments are crowd-driven investments, and really for people who don't do their own work and analysis. To me, this is just crowd speculation rather than investing.
You know, some of these investments may be incredibly good investments and some may be absolutely terrible investments. And it's really a lottery, investing in that. I think investing is all about doing your own analysis, and it's not about what the crowd thinks.
So when, when the crowd is all moving in a direction, they all think they're heroes because everybody's just piling in, of course, as you put more people into a single investment, the price goes up.
That doesn't mean that the investment’s worth more money just because its price is going up. That's just more people are buying the investment.
But if that crowd changes direction, you could get murdered.
And to be in that investment, it's a bit like as Warren Buffett says: “These people go, oh, I know that, but don't worry, I know I'll get out of the investment.”
But the problem is it's like being Cinderella at the ball, you know, all these Robin Hood investors are in these investments, all thinking that they're smart, that they can exit the party at one minute to midnight. The problem is, the clocks have no hands at this party. And if you wait till it strikes midnight, everything turns to pumpkin and mice.
So, I regard it as fairly high risk. When things are all rosy, it looks like an easy way to make money, but you could be picking up coins in front of a steam roller,
# 9 Crypto is a mass delusion, headed to zero ...
The latest investor letter I wrote was on crypto and Bitcoin. I was just trying to point out that, that the lack of any substance behind something like Bitcoin, and it's really a study in human psychology. And I referred to it as a mass delusion. There is no intrinsic value underpinning, something like that.
The technology of the blockchain is incredible in terms of a distributed ledger, the proof, the concept is, is very smart.
Psychologically, it's playing on people's fear of central banks printing money. And the fact that there's a limited supply
And I think it is inevitable that most of these digital forms of cryptocurrencies. that have no backing by government, or no tangible backing underneath them of any substance, will inevitably go to zero in the future.
I can't tell you whether that's in 12 months or two.
#10 … But we are headed to digital currencies
The emergence of digital currencies in the world on the blockchain is real.
We are going to move away from paper-based currencies of the world to digital currencies in the world. We are most likely going to have central bank digital currencies. Whether people have a direct account with the central bank on their ledger, or they're going to use the banking system to effectively stand between. It is a very important regulatory issue, but I think we will take paper, money out of society and we'll digitalize it on the blockchain."
kiora
24-09-2021, 08:27 AM
For those that really want to get technical. Good especially if you are starting out
"It's a market of stocks rather than a stock market"
https://seekingalpha.com/article/4456346-dividend-investing-from-scratch-what-if-i-had-to-start-over?mailingid=25122357&messageid=must_reads&serial=25122357.402841&utm_campaign=Must%2BRead%2BSeptember%2B23%2C%2B202 1&utm_content=seeking_alpha&utm_medium=email&utm_source=seeking_alpha&utm_term=must_reads
DonkeyKong
24-09-2021, 11:45 PM
https://www.livewiremarkets.com/wires/money-makes-money-10-investing-tips-from-hamish-douglass
"Money makes money: 10 investing tips from Hamish Douglass
Matt Buchanan
MATT
BUCHANAN
Livewire Markets
FOLLOW
CONTACT
In the recent 100th episode of his podcast Inside The Rope, David Clark was joined by special guest and long-time supporter, Hamish Douglass of Magellan (Douglass first appeared in the second episode of ITR in 2017.)
In it, Douglass, who was then in London conducting business, was asked for his take on COVID, the reopening, Crypto, Robin Hood stocks, inflation, and the ongoing regulatory crackdown in China (all the more interesting given Magellan's well-known stake in Alibaba).
He also offered a short-term macroeconomic outlook.
However, the bulk of the podcast was given over to the investment lessons Douglass has gleaned from the great investors over the course of his singular career, among them Warren Buffett, Benjamin Graham, Phil Fisher, Peter Lynch, and Richard Thaler (under whom he studied at Harvard).
In this wire, I have cherry-picked 10 key investment tips that sprang from Clark's one simple but elegant question:
What behaviours through your career have you learnt or studied from others that have made you a better investor?
HAMISH DOUGLASS: It's a very good question, David. I spent a lot of time studying the great investors of the world, whether it's Phil Fisher, Ben Graham, Warren Buffett, or Peter Lynch asking how have they created these incredible track records.
And you pick up different things from different people, but also in your own experiences, you have to understand that you never stop learning in this game.
And if you think you know everything, that is the point where you really don't know anything. It’s about trying to understand some very complex issues.
You try to predict the future in a future that has rhymes of the past, but always can be different in the future.
There are tools of the trade that I've picked up from people in my own lessons over time that, that I think are important for anyone in investing.
And I'm not sure these are in order of the most important things, but I think they're all important.
#1 The importance of a margin of safety
One, I would say I learned from Ben Graham and his great book Security Analysis was the proposition of a margin of safety. You want to buy assets at less than you think that they're worth in order to incorporate some room for error as things go wrong. And when things go wrong, you want to have a margin of safety.
If you're designing a bridge that can take a hundred thousand tonnes you don't want to set the safety limit at 99,999.
You'd probably want to set the limit materially below the maximum capacity of the bridge to make sure you're never testing that. And that's the same thing in investing.
You want to make sure that you incorporate some room for error in your analysis. And that, that was a very important lesson from Ben Graham.
#2 The circle of competence
I think this is really an important lesson from Warren Buffett and that's something he calls his circle of competence. You don't want to pretend to be an expert in everything because you become a know-nothing investor.
I describe our approach as an inch wide mile deep and very, very clearly defined areas in which we have expertise.
For example, we don't invest in biotech. There can be some great biotech investments, but I would say it's largely outside my area of competence or expertise. I'm not a trained scientist in that area. And we, we want to invest in areas where we really think we have some knowledge and some edge and things we can understand.
I also believe that it comes down to an issue of focus as well.
We're very, very clear at what we do at Magellan. We're very focused on very high-quality companies. High-quality companies aren't going to perform the best every single day of every single month of every single quarter. But, over time, they've got tremendous advantages because they have much lower failure rates.
#3 You have to be prepared to just throw something in the bin
Another thing I learned, and this comes to heuristic biases that a lot of people suffer, is you need to be prepared to walk away from investments.
That's really hard because often you spend an enormous amount of time and effort researching, or you can be in investments that go wrong, and then you start to convince yourself “oh, well, I can make my money back”.
You've got loss-aversion bias, you've got the cost of time, and you really have to be prepared to just throw something in the bin
#4 You have to be prepared to change your mind when the facts change.
You don't want to start refitting an investment case to a new set of facts and believing or convincing yourself nothing has changed.
So, when something's changed, don't be afraid to admit that you're wrong. And that's happened to us numerous times over my career that we've had to face reality and deal with it.
And I find it very therapeutic to actually admit not only to yourself, which is the first one, but to admit publicly that you've made an error.
The nature of the game is to not get focused on that one investment that can go wrong, but to focus on what I call the batting average of the portfolio.
It's easy to focus on, well - Alibaba had a bad year that year, but it's small in the context of the overall portfolio. What you don't want is a whole series of investments that go wrong.
And the batting average is all about having a very consistent win rate and minimising the error rate.
# 5 A medium-term investment horizon
It's really important. It's really easy to say. It's really hard for people to do, to genuinely see out three to five years in the future and not to get caught up in the short term noise about how you're performing relative to the market - or what other people are saying. It's all about being able to see where the ball is headed and to back your judgement over time.
# 6 The power of compound interest
In our view, probably one of the most important lessons is the power of compound interest.
What you want to do is to be able to put your money into investments and effectively let those great investments work for you over time.
You don't care whether Microsoft is underperforming the index in the next six months. It is irrelevant. What is relevant is whether those investments can compound for you over five years, 10 years into the future.
What that rate of return is not about is one-off price changes, what you think the price can do in the next six months or 12 months. It's about whether investments can compound for you.
A quote I often give people is a quote from one of the founding fathers of the United States, Benjamin Franklin, and he said:
“Money makes money. And the money that money makes, makes more money.”
And if you think about it, that's what investing is all about.
It's about taking a longer-term view, backing the right businesses that effectively can compound their earnings at a very, very satisfactory, rate.
We've made many investments we’ve held for over 10 years. And many of these, if we take Microsoft, which is still our largest investment, we invested in 2014. So seven years ago, we took our major position, $28 a share. We have made 10 times our money.
This concept of time and compound interest is at the centre of what we do. You want your money to work for you. And we set ourselves an absolute hurdle over the long-term. After all fees, 9% per annum is our hurdle. The strategy has done better than that over time.
You just keep learning more things all the time by reading and looking and hopefully being very honest yourself, what you get right, and what you get wrong.
# 7 Emotional detachment: What Richard Thaler taught me at Harvard
I actually went to a course at Harvard, that Richard was teaching so I had some firsthand experience with Richard. He's written some wonderful materials on heuristic biases, one of them is emotional attachment.
Some people have the right temperament for investing. And one of the things in the great investors like Buffett and others of the world, they're just very emotionally detached from their decision-making, it's just incredibly objective.
I'm lucky I'm fairly emotionally detached from things, and very driven by the analytics.
Buffet often says that the stocks don't know that you own them, and that's largely the case. And the way to think is that these stocks don't know whether you own them, or you don't own them, so don't get emotional about it.
I'm lucky I'm not that emotional. Maybe that's why I'm an oddball, slightly, here.
# 8 Don’t pick up coins in front of a steam roller: On Robin Hood stocks
Robin Hood-style investments are crowd-driven investments, and really for people who don't do their own work and analysis. To me, this is just crowd speculation rather than investing.
You know, some of these investments may be incredibly good investments and some may be absolutely terrible investments. And it's really a lottery, investing in that. I think investing is all about doing your own analysis, and it's not about what the crowd thinks.
So when, when the crowd is all moving in a direction, they all think they're heroes because everybody's just piling in, of course, as you put more people into a single investment, the price goes up.
That doesn't mean that the investment’s worth more money just because its price is going up. That's just more people are buying the investment.
But if that crowd changes direction, you could get murdered.
And to be in that investment, it's a bit like as Warren Buffett says: “These people go, oh, I know that, but don't worry, I know I'll get out of the investment.”
But the problem is it's like being Cinderella at the ball, you know, all these Robin Hood investors are in these investments, all thinking that they're smart, that they can exit the party at one minute to midnight. The problem is, the clocks have no hands at this party. And if you wait till it strikes midnight, everything turns to pumpkin and mice.
So, I regard it as fairly high risk. When things are all rosy, it looks like an easy way to make money, but you could be picking up coins in front of a steam roller,
# 9 Crypto is a mass delusion, headed to zero ...
The latest investor letter I wrote was on crypto and Bitcoin. I was just trying to point out that, that the lack of any substance behind something like Bitcoin, and it's really a study in human psychology. And I referred to it as a mass delusion. There is no intrinsic value underpinning, something like that.
The technology of the blockchain is incredible in terms of a distributed ledger, the proof, the concept is, is very smart.
Psychologically, it's playing on people's fear of central banks printing money. And the fact that there's a limited supply
And I think it is inevitable that most of these digital forms of cryptocurrencies. that have no backing by government, or no tangible backing underneath them of any substance, will inevitably go to zero in the future.
I can't tell you whether that's in 12 months or two.
#10 … But we are headed to digital currencies
The emergence of digital currencies in the world on the blockchain is real.
We are going to move away from paper-based currencies of the world to digital currencies in the world. We are most likely going to have central bank digital currencies. Whether people have a direct account with the central bank on their ledger, or they're going to use the banking system to effectively stand between. It is a very important regulatory issue, but I think we will take paper, money out of society and we'll digitalize it on the blockchain."
Good read.
DonkeyKong
25-09-2021, 01:14 AM
For those that really want to get technical. Good especially if you are starting out
"It's a market of stocks rather than a stock market"
https://seekingalpha.com/article/4456346-dividend-investing-from-scratch-what-if-i-had-to-start-over?mailingid=25122357&messageid=must_reads&serial=25122357.402841&utm_campaign=Must%2BRead%2BSeptember%2B23%2C%2B202 1&utm_content=seeking_alpha&utm_medium=email&utm_source=seeking_alpha&utm_term=must_reads
Great read. Thank you for that.
kiora
29-09-2021, 06:20 AM
It seems to be that if your portfolio hasn't doubled in value since the low of March 2020 then it has underperformed
From Simply Wall Street.
"Pt 3: Inflation: Why the monetary support comes with a hidden cost
Unprecedented health pandemic
=
Unprecedented monetary response
The economic support provided globally by governments and central banks in response to the pandemic has been nothing short of extraordinary (in terms of scale, that is).
That’s because the scale at which shutdowns impacted global economic activity, in the form of business closures, event cancellations and travel restrictions, is one of the greatest endured during any global crisis.
While much of the support has been crucial in helping economies, businesses and people to transition through the abnormal conditions, there’s no such thing as a free lunch.
All of this support comes at a cost.
Some are direct costs, such as the fact that the fiscal support provided by most governments is from borrowed money (that they’ll have to eventually pay back), and others are more indirect costs.
We want to focus on these indirect costs because they can impact our portfolios in many different ways. By the end, we also want to outline what we as investors can do to make sure our portfolios and stocks within them are able to navigate these challenges.
An increase in the money supply
For starters, it’s worth touching on the money supply. As a result of huge financial support over the last 18 months, many economies around the world have increased the amount of their respective currencies in circulation in order to stimulate their economies and encourage spending. The US is one of the best known and widely discussed examples of this.
The most commonly referenced figure for a gauge of a country’s money supply is called M2, and it is a combination of liquid monies like cash and short term bank accounts, plus savings accounts, longer term deposits, and money market funds.
This M2 figure reached $20.5 trillion dollars in July of 2021. To put that in perspective, back in January 2020, that figure was $15.4 trillion, meaning 25% of all USD in existence has been created in the last 18 months alone.
Figure 1: M2 Money supply 1960 to 2021 - FRED Economic Data
In a very simplistic way of looking at it and all else being equal, when you increase the supply of something, its value typically goes down since it isn’t as scarce as it was before. But in this case, the (nominal) value of a dollar is constant by definition, so when the money supply increases, a dollar buys fewer of the same goods and services now than it did a year ago.
What’s interesting is that we are already seeing signs of inflation, it just depends on the basket of goods you’re looking at.
An increase in the money supply
If you’ve recently been to the grocery store, you might have noticed some items like meat and some produce are slightly more expensive. Whereas other more everyday items haven’t changed too much. That’s because unlike some meats and produce, most of those goods haven’t had the same sort of supply/demand shocks (discussed in Part 1).
However from what we’re seeing in the data, there are signs of above average inflation. Below is a chart showing the last 25 years worth of CPI (Consumer Price Index - explained below) data in the United States. You can see that from the lows of 2020, rates of annual inflation have been around 5% for the last few months, which is above the Federal Reserve’s goal of a 2% average rate (over the long term).
Figure 2: Monthly CPI Inflation from 1997 to 2021 - Trading Economics
The CPI basket includes goods such as food and beverages, tobacco, gasoline, furniture, shelter, transportation, etc. The Federal Reserve is reportedly satisfied with this level of higher inflation at the moment because historically inflation has been below their 2% target for quite some time.
You may have heard the phrase “it’s transitory inflation” thrown around, and that simply refers to the fact the Federal Reserve believes this higher inflation is simply temporary, and will reduce to normal levels as supply and demand pressures normalise. Time will tell if this is the case...
Now, while those inflation figures above may not appear to be too high (though some claim the inflation figures are actually understated), it hasn’t been as high as what we’ve seen occur in other asset classes. That’s why it’s useful to look at both CPI data, and asset price data.
A cocktail of huge increases in the money supply, ultra low interest rates, limited supply and higher than usual demand have helped drive the prices of other more scarce asset classes upwards.
Whether it be equity markets, real estate, some commodities or cryptocurrencies, many asset classes outside of the CPI basket of goods have experienced much higher “inflation” over the past 18 months.
For example, if you look at the average price of a home in the US, it has risen to a high of $363,000 in June this year, up 23% from 12 months prior (now back at $356k). Plenty of other real estate markets around the world have experienced similar price appreciation.
If you look at the US stock market (S&P 500), it has risen 35% in the last 12 months alone, and is up 92% from the lows during March 2020. We can see from the SWS chart below, that from January 1st 2020, the increase in market capitalization (roughly 50%) appears to be slightly outpacing underlying earnings growth (roughly 23%).
Figure 2: U.S Market Valuation and Performance - Simply Wall St Market Page (currently in Beta and being rolled out)
That either means that investors have higher expectations for the future earnings growth, OR they’re allocating their funds to the asset class of “equities” simply because it is perceived to have a better risk/reward profile than other asset classes, like cash or bonds.
This second possibility stems from the idea of opportunity cost, that is, an investor’s decision of where is best to allocate their personal funds.
It’s clear that while we might not be seeing as much inflation in the CPI basket of goods (at least not yet), we are certainly seeing it in other areas and asset classes.
If the money printing is set to continue, then it appears that the opportunity cost of holding a non-scarce asset like cash over more scarce assets like equities, becomes even more clear.
So what can we as investors do?
You may have heard the saying “Cash is trash”, and that’s simply referring to the fact that in the current financial system, it doesn’t have the best track record of performance.
To stress that point, $1 USD back in 1913 had the same purchasing power as $26 in 2020. Most fiat currencies around the world (money issued by central banks or governments) have followed a similar trajectory, or worse.
Figure 4: Purchasing Power of the US Dollar from 1913 to 2020 - Created by Visual Capitalist - April 2021
Now just to be clear, we’re not saying holding cash over short periods of time is bad. In fact it’s great to always have some cash on the sidelines, because it allows you to deploy funds during rare opportunities when assets go on sale. (This is referring to cash for your investments which is separate to cash for an emergency fund).
If you held cash over the long term though, historically speaking it’s been a horrible investment. It’s slowly deteriorated in value thanks to the invisible hand of inflation as the money supply has grown.
So as mentioned, if the trend of money printing is set to continue long term, then allocating funds to scarcer assets (like equities) rather than holding cash seems like the better alternative.
If we do then decide to allocate our capital to stocks, this then raises some follow-on questions: What stocks should we buy? How can we assess their strength? Do they have any weaknesses? What are their future prospects like? Will they be able to handle an inflationary environment?
You might know that our philosophy at Simply Wall St is to not try to predict where the market is going or what will happen next in the macro environment. Instead we’d do well to continue following some core investment principles that have stood the test of time. One of them is:
Buy high-quality businesses with good long term prospects at a price below their intrinsic value.
Here’s some questions, a checklist of sorts, that can be useful to ask ourselves when looking at a stock (and how Simply Wall St can help in some areas):
1. Is the company a high-quality business that generates high returns on capital?
“Quality” businesses are those that have a sustainable competitive advantage over their competitors. Think of things like brand power (Apple NASDAQ:AAPL), economies of scale (Costco - NASDAQ:COST), or network effects (Facebook - NASDAQ:FB).
In terms of determining the company’s return on capital (how much it makes per dollar invested), you can check out the Simply Wall St Past Performance section within each company’s report to see how well the company allocates money. Here’s an example of Apple’s returns.
2. Does the company have good future prospects?
As mentioned in Part 2, it’s much easier to invest in industries with tailwinds rather than headwinds. If the company has good growth prospects with more room left in its Total Addressable Market (TAM) to serve, then it’s got room to grow. On Simply Wall St you can check out the Future Growth section, here’s Amazon (NASDAQ:AMZN) for example.
3. Is the business capital intensive?
If the business requires a lot of upfront capital invested to generate its product or service (think manufacturing or construction), then it can be vulnerable to inflation pressures if the cost of its inputs increase. However if it’s a capital light business model (think software), then it’s less vulnerable to having its margins eaten away by inflation (that is if its costs increase but it can’t increase its prices equally). Here again, for example, we can see Apple’s operating expenses remaining flat while revenues have increased, which have helped drive profit margins higher.
4. Can the business raise its prices at or above the rate of inflation?
Think about it this way, does the business provide enough value to customers where they are happy to pay up if prices increase? Or would they go to the cheaper alternatives? Is the business in a market where consumers are simply looking for the cheapest product, or does the company have a business or status where it can afford to raise its prices and not lose any customers?
5. Is the business able to afford its debt? (if it has any)
Given the current low interest rate and inflationary environment, taking on debt is actually quite an appealing source of capital. So utilizing debt effectively can help a company increase its profitability. The key here is to assess if the debt is affordable, especially if interest rates were to rise. Within the Financial Health section, we run checks on the affordability and absolute level of debt, so you can get a quick understanding of both how leveraged a company is, and how affordable that debt is.
6. Is the business in a growing industry?
As mentioned before, investing with tailwinds is easier than investing in an industry facing headwinds. You may know of industries that are growing and that you want to invest in, but not be aware of the particular companies within it. We’ve got a screener to help with that.
If you want to look at the Renewable energy sector for example, which we know is growing, you can start by checking out the Global Renewable energy screener we’ve developed, then drilling down from there depending on what country you want to look at.
6. Is the company trading at a discount or premium to its intrinsic value?
We could do a whole email series on the nuances of valuation, so we won’t go into depth here but just keep this in mind. A high quality business can become a bad investment if you pay too much.
If now isn’t the right time to buy, be patient. If the company still ticks all the other boxes for you, it’s worth putting it on your Watchlist within SWS because the market can fluctuate and give you an opportunity to buy at a better price. From there, you can monitor all its developments, set your own fair value and we’ll keep you up to date on all the important updates.
This list is by no means all-encompassing, but by simply following this short checklist and other timeless investment principles (which we’ve covered in our 3-part election series last year), we can position ourselves to:
Better withstand whatever macro-environment we face
Make more informed investment decisions
Avoid succumbing to FOMO
Be confident in the portfolio of high-quality stocks that we own
Take advantage of structural growth opportunities
Not overpay for businesses, no matter how good they are"
kiora
21-10-2021, 03:57 AM
https://www.interest.co.nz/rural-news/112834/carbon-and-forestry-increasingly-linked-overseas-investors-continue-outmuscle
"The message I am getting from the field is that almost all sheep and beef farms currently coming on to the market are being snapped up by current and prospective foresters. This week I have been informed of very steep North Island country, distant from a port, selling for $15,000 per plantable hectare, with the investors coming from overseas. This must be close to double last year’s market value, perhaps more."
"Is owning farmland a good investment?
Not only is farmland a good investment in an inflationary environment — farmland also provides robust average annual returns. Between 1992 and 2020, farmland provided average annual returns of nearly 11%, including income and price appreciation.17/06/2021"
https://www.cnbc.com/2021/08/20/heres-why-the-ultra-wealthy-like-bill-gates-investing-to-farmland.html
kiora
13-12-2021, 08:14 PM
"Ignoring intangible assets in company capital bases creates the very real possibility that suboptimal decisions are being made by investors, companies - and countries"
https://www.interest.co.nz/business/113720/ignoring-intangible-assets-company-capital-bases-creates-very-real-possibility
Aaron
14-12-2021, 08:28 AM
https://www.interest.co.nz/rural-news/112834/carbon-and-forestry-increasingly-linked-overseas-investors-continue-outmuscle
"The message I am getting from the field is that almost all sheep and beef farms currently coming on to the market are being snapped up by current and prospective foresters. This week I have been informed of very steep North Island country, distant from a port, selling for $15,000 per plantable hectare, with the investors coming from overseas. This must be close to double last year’s market value, perhaps more."
https://www.cnbc.com/2021/08/20/heres-why-the-ultra-wealthy-like-bill-gates-investing-to-farmland.html
I think they are looking more at carbon credits rather than harvesting the timber, although eventually they will need to harvest the trees I guess. Potentially the price of carbon credits could explode as we continue in a consumption and growth driven economic model. Planting NZ out in pine trees will produce a lot of carbon credits to sell to industry in Asia, America and Europe etc so they can keep pumping out product.
The farmers might have it right with their concerns about productive land being turned into carbon sinks. Worse that it is pine trees so little real benefit to the NZ environment. Might bring the price of wood down for building houses in another 20-25 years, so we can fit more people in to help GDP and business growth.
I think they are looking more at carbon credits rather than harvesting the timber, although eventually they will need to harvest the trees I guess. Potentially the price of carbon credits could explode as we continue in a consumption and growth driven economic model. Planting NZ out in pine trees will produce a lot of carbon credits to sell to industry in Asia, America and Europe etc so they can keep pumping out product.
The farmers might have it right with their concerns about productive land being turned into carbon sinks. Worse that it is pine trees so little real benefit to the NZ environment. Might bring the price of wood down for building houses in another 20-25 years, so we can fit more people in to help GDP and business growth.
The nation that can produce the product for the lowest cost wins (ie China). Unfortunately carbon credits are not a solution to a thriving economy. NZ is a low productivity / low GDP nation compared to the larger OECDs, and will continue to be (or may get worse as our standard of living keeps eroding).
So in the realm of investment rules. The rules are not universal around the world. That is NZ's strict environment, or carbon emissions scheme etc. simply do not apply to places like China. So the products that attract a high carbon footprint are no longer made in NZ and instead, the environmental cost is shifted to another country like China.
Panda-NZ-
14-12-2021, 04:56 PM
The nation that can produce the product for the lowest cost wins (ie China). Unfortunately carbon credits are not a solution to a thriving economy. NZ is a low productivity / low GDP nation compared to the larger OECDs, and will continue to be (or may get worse as our standard of living keeps eroding).
Should unite with australia long term. so many world challenges that only regional unity can somewhat protect against.
Maybe after the govt there is changed there can be incremental improvements (including better climate adaption policies for their own good as they're actually being hit hard with multiple droughts and bushfires but doing almost nothing about it).
kiora
26-12-2021, 03:29 PM
Focus on the experience the customer receives, not the price paid
https://www.youtube.com/watch?v=h89uOvUDVO4
Focus on the experience the customer receives, not the price paid
https://www.youtube.com/watch?v=h89uOvUDVO4
and it's that customer experience that has unlocked America's potential:
https://www.visualcapitalist.com/wp-content/uploads/2021/12/Global-GDP-by-Country-2021-V15.jpg
kiora
09-02-2022, 06:05 AM
https://www.tradingview.com/chart/BTCUSD/TRrwICB7-Traders-vs-Gamblers-Know-the-main-differences/?utm_source=Weekly&utm_medium=email&utm_campaign=TradingView+Weekly+145+%28EN%29
"how traders are different from gamblers.
1) As a trader, one’s aim is to focus on the next 100 trades instead of the next 10. Long-term success, profitability, and consistency are two of the main things traders should target. However, a gambler’s wish and desire is to make quick money.
2) A successful trader/investor has a backtested trading plan that he sticks to and optimizes along the way, adapting to changing market conditions. On the other hand, gamblers like to trade based off what other people think and tweet, or by simply opening a random Buy/Sell position and hoping it plays out successfully.
3) Profitable traders always diversify their portfolio and risk no more than 1-2% per trade. On the contrary, gamblers go “full margin mode” on a single trade without setting a Stop Loss and end up blowing their accounts and blaming the markets.
4) Chasing markets and rushing the process is not what real traders do. Instead, they follow their plan and wait for the price to play out and match their entry criteria before executing. Nonetheless, gamblers like to overtrade, open positions based on nothing, make biased decisions.
5) When enduring a loss or two (or three), traders neither get emotional nor try to revenge the markets. They know that if they obey risk management principles and open high risk-to-reward positions, they will cover all their previous losses and get back to making profits. Gamblers, on the other hand, get angry and start attempting to revenge the market by making foolish decisions and entering many illogical trades.
6) Last but not least, if you want to be successful and profitable in this field, you have to treat trading as a business and take things seriously. Those that think markets are a playground or a casino machine will never succeed in this space."
AND worth reading the comments
"
bertanarg
∙
2 hours ago
∙
TradingView for Android
Just looking on the mathematical side of this discussion, there is no big difference. There is a probability of success, a probability of loss and a probability distribution for profits and losses.
One advantage of investing in financial markets is the long term positive expected value, which diminishes the shorter time horizon you have.
Lets put it
investing = long term trades, where you oftem have the edge on your side
trading = short term trades, where you can have the edge on your side if you did the maths
gambling = dont care about the stats and just following your gut feeling and emotion in placing and sizing trades
By the way, it is even possible to be profitable in sports betting if you do it properly. In my opinion putting labels like trader, investor or gambler on anyone who is active in a specific area is therefore a consequence of a superficial and not profound understand of the matter."
"
brmicha2000
∙
an hour ago
Absolutely. I just wanted to add a couple of things. Gamblers always think that they can tell the future so well that they can make the big bet on their prediction. That doesn't really make much sense when one thinks about it. No one can tell the future. Trading systems are about making trades based on a back-tested system where you know what the future statistics are likely to look like. They trade based on probabilities of an outcome. They exit in a loss when those probabilities turn out to be wrong in this case, and they look at the longer term statistical outcome. Trading systems care more about what the statistics look like month to month, such as win percentage, risk to reward ratio, and max drawdown. They analyze these factors on a consistent basis to understand how the system is doing from a statistical standpoint. Saying the market is not predictable would upset just about all gamblers. Of course, another way to do things is to invest, which is far different from trading. Investing is buying undervalued, solid companies or other assets based on fundamentals. Various ways can be used to collect on those assets over time. Investing could be in any valuable asset including real estate, (which right now, is likely quite overvalued as a sector). Collecting dividends is a big part of it, and tax considerations are a major part of it. All businesses care about taxes. I take money from trading systems and place it into longer term investing and dividend collection to build a trading business. I also use low risk options strategies to collect on those assets. I find it difficult to believe that all someone wants to do is run trading systems in a high risk environment such as index futures, (even though I really enjoy running trading systems in these environments)."
kiora
09-02-2022, 06:36 AM
And here is a strategy that sounds interesting but complicated ?
https://www.tradingview.com/chart/PYPL/bgAtEJZz-Fundamental-analysis-on-PYPL/?utm_source=Weekly&utm_medium=email&utm_campaign=TradingView+Weekly+145+%28EN%29
Looks like interesting ideas ?
kiora
13-02-2022, 05:43 AM
Could easily be How Science is Taking the Luck out of Investing. rather than gambling
https://www.youtube.com/watch?v=658xlubwnDc
Pricey
15-02-2022, 08:20 AM
What are peoples asset allocation strategies? I am trying to re-defined my own, after having lost some money! My WIP:
- To hold between 70 - 80 per cent. In the share market (with the ability to deviate in downturns)
- No more than 10% invested in an individual company at the time of investment
- No more than 20% invested in any individual company at any time
- 0-5 hand picked companies: no more than 60 per cent
- 5 - 10 hand picked companies: no more than 70 percent
I am going to start benchmarking my portfolio better as well, so if my hand picked companies don't outperform the funds/ETFs then the percentage allocation gets revised down (and vice versa). I also mix this with "investment considerations" when deciding whether to invest in a company e.g. global revenues, non-correlated industries.
kiora
15-02-2022, 09:20 AM
The downside of that diversification strategy is it could easily trim the ones growing the most once they get to the 20%.My strategy is to let the winners run & cull the laggards.
After investing in the markets for over 40 years I still could be wrong !
The longer I have been investing the less diversified has been my share portfolio.
But I have diversified through managed funds & other less liquid investments.
Any strategy should consider liquidity
"Diversification reduces risk by investing in vehicles that span different financial instruments, industries, and other categories. Unsystematic risk can be mitigated through diversification while systemic or market risk is generally unavoidable"
The downside of diversification is
"Yes, Diversification Can Hurt Your Portfolio"
https://www.forbes.com/sites/kennethwinans/2020/01/06/yes-diversification-can-hurt-your-portfolio/?sh=d50754420458"
kiora
15-02-2022, 07:17 PM
https://seekingalpha.com/article/4486701-jim-sloan-why-i-own-what-i-own-my-stay-rich-portfolio?mailingid=26709261&messageid=must_reads&serial=26709261.784445&utm_campaign=Must%2BRead%2BFebruary%2B14%2C%2B2022&utm_content=seeking_alpha&utm_medium=email&utm_source=seeking_alpha&utm_term=must_reads
"It is somewhat concentrated and certainly not diversified in the traditional way. It was put together piece by piece and occasionally pruned by elimination of positions which appeared to have a problem. Despite the lack of diversification it is rather conservative as befits a man of my age (77) but I think it will continue to have reasonable growth."
(It is not me that this refers to)So concentrated & conservative can work well. The longer /older an investor becomes the more diversified their investments can become with increased capitol.
The other lessons this article mentions is
Conviction. How many times do we hear, "I should have brought more" Back your gut instinct, "all in" particularly when still young & earning.
Tier Holdings Most investors like to take a punt. It does little harm to total returns if these holdings are kept small and added to latter & can be quite exciting
Pricey
16-02-2022, 07:45 AM
Thanks for your thoughts. I am recently in the "for" side on diversification, the explanation of "the power of diversification" in this article sold it to me: https://www.fool.co.uk/investing-basics/how-to-think-about-asset-allocation/
The reason for the cap of 20% is because it forces me to take money off the table and re-invest elsewhere when the portfolio is imbalanced. I have seen a lot paper gains wiped out e.g. ATM, OCA, RBL (on the ASX). and am slowly starting to learn to "leave some on the table for others". Long-term winners should stay within the cap because I will continually invest and expand the pie - or so the theory goes!
kiora
19-02-2022, 09:16 AM
Similar to my strategy
"Around 80% of our portfolios by stock number are anchored around more sizeable, liquid companies where we have a lot of confidence in the medium to long-term outlook. These companies are typically a bit more mature in their development but would also be considered as being higher quality (e.g. strong management, higher returns on capital etc) and still have prospects for efficient growth. The balance of the portfolio is a ‘nursery’ of ideas that we believe have excellent potential in the medium to long-term but are earlier in their journey."
https://www.livewiremarkets.com/wires/early-stage-investing-4-companies-primed-for-growth
kiora
21-02-2022, 07:57 AM
https://finance.yahoo.com/news/munger-kipling-investing-152046657.html
Munger on diversification
"if you have 4 good investments that's enough,20 then you're likely to have egg in your beer"
BH never tries to "time the market", tries to be 100% invested.
"People driven by envy not greed"
https://finance.yahoo.com/news/munger-kipling-investing-152046657.html
Munger on diversification
"if you have 4 good investments that's enough,20 then you're likely to have egg in your beer"
BH never tries to "time the market", tries to be 100% invested.
"People driven by envy not greed"
Yep I saw Munger's Daily Mail AGM. Not surprisingly the whole investment community, particularly the financial advisors, don't give a rats ass what he has to say. Like he's said recently, "When you get to be my age, you get to the ability to say anything" - meaning as insulting as it can be.
kiora
03-03-2022, 10:21 AM
"Unlike real estate, equities are highly liquid (can be bought and sold easily), transparent (daily pricing), pay a higher yield, don’t require managing tenants and building maintenance and don’t chew up capital in the in the form of horrible taxes such as stamp duty, rates, land tax and others"
https://www.livewiremarkets.com/wires/the-top-1-invest-61-of-their-wealth-in-one-asset
kiora
04-03-2022, 09:04 AM
"“Often, there is no correlation between the success of a company's operations and the success of its stock over a few months or even a few years. In the long term, there is a 100 percent correlation between the success of the company and the success of its stock. This disparity is the key to making money; it pays to be patient, and to own successful companies.”
https://www.livewiremarkets.com/wires/from-dreadful-mistake-to-12-bagger-why-it-sometimes-pays-to-hang-in-there
kiora
16-03-2022, 09:14 AM
Woow soon everyone will be doing this ???
"Three Dimensional Moving Averages"
https://www.tradingview.com/script/EtM15SgP-Moving-Averages-3D/?utm_source=Weekly&utm_medium=email&utm_campaign=TradingView+Weekly+150+%28EN%29
JBmurc
16-03-2022, 04:07 PM
Only sell a portion of your runners .. but don't be stress to dump your losers
kiora
17-03-2022, 10:32 AM
"The janitor who amassed a fortune: How character underpins investment success"
All newbie investors should read this!
https://www.livewiremarkets.com/wires/the-janitor-who-amassed-a-fortune-how-character-underpins-investment-success
"In sharp contrast, nowadays many people – and virtually all politicians and their mascots – loudly and self-righteously proclaim their “passion” to “change the world.” But they can do so only by coercing others: hence their alleged “compassion” is merely a false front for the urge to rule. Sincerely passionate people, as P.J. O'Rourke sagely put it, humbly and quietly volunteer to wash the dishes. Genuinely changing the world for the better entails countless instances, figuratively and literally speaking, of washing the dishes – and endowing hospitals and libraries."
kiora
25-03-2022, 08:48 AM
https://www.livewiremarkets.com/wires/what-do-google-and-lvmh-have-in-common
"In summary, IP is not a cure-all in investing. It is a vital competitive advantage though curation is key as not all IP is created equal."
PS
This may shake things up a bit?
Newscorp to be paid $100m/yr??? if I remember correctly
https://www.theverge.com/2021/2/24/22283777/australia-new-media-bargaining-code-facebook-google-paying-news
"The Australian government has passed a new law requiring Google and Facebook to negotiate with news outlets to pay for their content or face arbitration.
“This is a significant milestone,” said Josh Frydenberg, the Liberal party’s deputy leader who spearheaded the new law. "
Sous87
28-03-2022, 09:51 AM
Hi everyone. Can I ask if anyone has a couple of recommendations for an investor looking to try a bit of trading, and for someone currently using Sharsies as an investment platform, as to whether there is a better all-in-one platform with live trading data suited to more frequent day/swing trading? I have a majority portfolio percentage in the ASX currently, and some NZX and some US.
Or is it that Sharsies is perfectly fine and it’s all about having the extra market tools like TradingView to work alongside it? Cheers, and apologies if this is not right place to ask.
couta1
28-03-2022, 12:12 PM
Hi everyone. Can I ask if anyone has a couple of recommendations for an investor looking to try a bit of trading, and for someone currently using Sharsies as an investment platform, as to whether there is a better all-in-one platform with live trading data suited to more frequent day/swing trading? I have a majority portfolio percentage in the ASX currently, and some NZX and some US.
Or is it that Sharsies is perfectly fine and it’s all about having the extra market tools like TradingView to work alongside it? Cheers, and apologies if this is not right place to ask. Sharesies is useless for trading, try Jarden or ASB for NZ stocks in particular.
kiora
30-03-2022, 07:00 AM
Make of this as you will
https://www.tradingview.com/chart/SPX/pkHUoWK7-The-Anatomy-of-a-Bear-Market/?utm_source=Weekly&utm_medium=email&utm_campaign=TradingView+Weekly+152+%28EN%29
"
So are we currently in a bear market?
How the Fed's Rate Hikes Affect the Market (or Not)
- Based on the four rules above, there's a high probability that we are not in a bear market.
- Since I've uploaded this post, the market has bounced swiftly off the 100 moving average on the weekly.
- Just as the covid-induced drop of March 2020 turned out to be a 'buy the dip' opportunity, as opposed to the beginning of a bear market, the sharp correction we have seen since the beginning of this year goes against the first rule of the bear market.
- It’s critical not to call a bear market falsely, and this is a huge mistake that a lot of people make.
- If the market is just going through a correction (a short, sentiment-driven downturn of -10% to -20%), you’re better off riding through it and maintaining your portfolio.
- It is impossible to accurately and consistently time market corrections because of the way they behave.
- A correction can start for any reason or no reason. So if you believe that the economy is strong, and the fundamentals of the company you invest in remain solid, there's no need to sell off your holdings, especially when your actions are motivated by fear.
Conclusion
Bull market corrections are not fun, but it's important as an investor for you to be able to distinguish bear markets/recessions from bull market corrections. Choosing to undertake a bear market investment strategy and go defensive should be rare and shouldn’t be done by gut feel or by your neighbor’s opinion. Exiting the market is among the biggest investment risks you can take—if you’re wrong and you have a need for portfolio growth, missing bull market returns can be extremely costly."
Make of this as you will
https://www.tradingview.com/chart/SPX/pkHUoWK7-The-Anatomy-of-a-Bear-Market/?utm_source=Weekly&utm_medium=email&utm_campaign=TradingView+Weekly+152+%28EN%29
"
So are we currently in a bear market?
How the Fed's Rate Hikes Affect the Market (or Not)
- Based on the four rules above, there's a high probability that we are not in a bear market.
- Since I've uploaded this post, the market has bounced swiftly off the 100 moving average on the weekly.
- Just as the covid-induced drop of March 2020 turned out to be a 'buy the dip' opportunity, as opposed to the beginning of a bear market, the sharp correction we have seen since the beginning of this year goes against the first rule of the bear market.
- It’s critical not to call a bear market falsely, and this is a huge mistake that a lot of people make.
- If the market is just going through a correction (a short, sentiment-driven downturn of -10% to -20%), you’re better off riding through it and maintaining your portfolio.
- It is impossible to accurately and consistently time market corrections because of the way they behave.
- A correction can start for any reason or no reason. So if you believe that the economy is strong, and the fundamentals of the company you invest in remain solid, there's no need to sell off your holdings, especially when your actions are motivated by fear.
Conclusion
Bull market corrections are not fun, but it's important as an investor for you to be able to distinguish bear markets/recessions from bull market corrections. Choosing to undertake a bear market investment strategy and go defensive should be rare and shouldn’t be done by gut feel or by your neighbor’s opinion. Exiting the market is among the biggest investment risks you can take—if you’re wrong and you have a need for portfolio growth, missing bull market returns can be extremely costly."
IMO it really doesn't matter where the market is at. To the individual investor, they really only have 2 paths to choose. One, go the diversification way in buying the index ETF funds like the S&P500. The other way is to do the Buffet / Munger way by picking 5 or so companies that will stand the test of time through thick or thin.
While we have such investment rules - why no mention about how 'active managed' funds operate? I mean after all if the individual has no chance of reliably timing the market, then why are these fund managers are so gung ho at doing it (or claiming they consistently do it) ? As Buffet and Munger has said, "No skin on their game" - they have nothing to lose by charging mgt admin fees on the funds they manage. It's the corruption I see in industry but none of the gov'ts will address it.
Every once in a while I get a laugh watching Buffet spew his rant on these managed funds back in 2016. Those that have lots of money, generally people who are well endowed with wealth, have no inclination to buying the index ETF but rather, end up paying enormous fees to fund managers. He would be invited by gov't pension funds and he would show them step by step the math and what happens... and at the end they still end up having to pay the 'helpers' for providing sub-par returns. These professional money managers need to charge a fee for their existence. They can't obviously advise you to just buy the S&P500 ETF and wait 50 years... that's not how fund managers get rich. And they always like to tweak things around from year to year (or else they would look like they don't know what they're doing) - so they claim when to buy low and when to sell high, or when to be in this sector or as you mentioned above, if we are in a bear market or in a bull market kind of deal.
iceman
30-03-2022, 08:02 PM
Good posts kiora and SBQ and well related to the endless repeated posts on ST, which clearly have shown who belongs to which camp, i.e. "active" (in and out of various shares and in and out of cash) vs those that take a longer term approach than daily SP.
It must be quite confusing for younger and less experienced investors on the forum and easy to go with the daily hype, both the ramping and downramping.
kiora
10-05-2022, 11:07 AM
"Self-evidently, the one who buys the dips does better. But the scale of the outperformance may surprise you. If each investor puts $100 a year into the market on this basis, one will end up after five years with $560 and the other with $745, a third more. "
"Things are rarely as good as we hope or as bad as we fear, and I wonder whether, when the war is over, inflation has fallen back and Covid has finally been eliminated, we will look back on some of these price movements and wonder why we didn’t act on them."
https://www.livewiremarkets.com/wires/six-reasons-why-buying-in-2022-s-global-shares-dip-may-make-sense
"Gone are the days of Unicorns being in the technology space. That's been over the last sort of 10 to 20 years. Now it's really that decarbonisation thematic, says Anthony Murphy, CEO, Lucerne Investment Partners"
"Well, let's get on to decarbonization. I'm going to share some results from a survey that we ran with our investors, just asking how they felt about the opportunity.
Over 50% said, decarbonization is a mega trend you can't ignore.
37% think it's an opportunity but they're still getting their head around it.
10% are not convinced that it's worth chasing.
Where do you sit? What's your view?"
https://www.livewiremarkets.com/wires/where-the-new-breed-of-unicorns-will-be-found-hint-not-in-tech
What could be more important than strategies? All the rest is details.
After having read through the whole thread, a few observations, for what they’re worth:
A rule/strategy repeated more than once: Buy shares of companies that provide experiences or products that you like/buy.
In general I agree with this, but have halved my money on Moa, and following this strategy would have seen me also halve my money on My Food Bag too.
The rule/strategy of Don’t catch a falling knife.
IMO this is not a good analogy, despite the repetition of it by many market commentators. Nassim Taleb's analogy about risk and Russian roulette is brilliant, and catching a falling knife is a similar analogy- literally, if you fail to catch a falling knife, your catching hand is likely stuffed, so you can catch no more (ambidexterity aside). But analogously, this doesn’t apply to buying a stock on a downward trend, as you can just invest a small percentage of your portfolio as a stock descends. If the stock keeps on descending, you survive even though you have lost a portion of your investment which may recover after some time (or go totally bankrupt). (I have had some success with catching such knives, but probably, more… non-catches.)
It would be good to see more about ethical investing-is this a new thread?
Technical Analysis (TA) and buying and selling stocks as they break through 50/100/200 day moving averages: is there any evidence that this strategy works? What do the articles published in academic journals show? I tried to find some evidence via Wiley online library, but the results of research into this appeared quite mixed. https://onlinelibrary.wiley.com/action/doSearch?AllField=trading+stocks+using+technical+a nalysis
Etc…
Snoopy
19-05-2022, 10:29 AM
Hi DTC and welcome to the forum.
What could be more important than strategies? All the rest is details.
After having read through the whole thread, a few observations, for what they’re worth:
*A rule/strategy repeated more than once: Buy shares of companies that provide experiences or products that you like/buy.
*In general I agree with this, but have halved my money on Moa, and following this strategy would have seen me also halve my money on My Food Bag too.
I may have been one of the posters that suggested the above. But I don't follow single factor investor bullet points. I remember bowling into the Spring Creek Pub just north of Blenheim with a couple of mates many moons before Moa Beer was floated in fact. When visiting a region, I like to try out the local brew. So I asked for a Moa, and was promptly told they did not stock it! That event experience has always stick with me. If the locals are not supporting their own product, then how good can it be?
I will happily buy a beer in the right circumstances. But that little experience kept me away from buying into the Moa float.
*The rule/strategy of Don’t catch a falling knife.
*IMO this is not a good analogy, despite the repetition of it by many market commentators. Nassim Taleb's analogy about risk and Russian roulette is brilliant, and catching a falling knife is a similar analogy- literally, if you fail to catch a falling knife, your catching hand is likely stuffed, so you can catch no more (ambidexterity aside). But analogously, this doesn’t apply to buying a stock on a downward trend, as you can just invest a small percentage of your portfolio as a stock descends. If the stock keeps on descending, you survive even though you have lost a portion of your investment which may recover after some time (or go totally bankrupt). (I have had some success with catching such knives, but probably, more… non-catches.)
This is a subset of the strategy based around the idea that a trend will likely continue until it ends. The key word in that sentence is 'likely'. Obviously if things were certain, then every share entering a downtrend would eventually bottom out at zero. Since that doesn't happen, 'managing the downtrend' becomes an exercise in 'picking the bottom'. The true chartist will rely on the 'collective wisdom of the market' to identify this point. That of course means that they will miss the actual bottom, because they will need to wait for a new uptrend to be confirmed before they buy in. So missing the best buy in point will be guaranteed absolutely if you use this method. But of course there is no guarantee that any new trend upwards will continue, it may quickly reverse again. If you don't play the investment cycles, like me, you will find that all of these uptrends and downtrends don't really matter.
I am one person who can say that as far back as I can remember, all of my share purchases have been made in downtrends. I can't think of a single one that wasn't. But that is a by product of a way I invest, and not a strategy in itself. My strategy is to value a company first. Then I will most likely have to wait until the share price comes down to below that level, which if you worry about trends (I don't), means you must wait for your price to be hit. And that can only happen in a downtrend.
If the share price keeps going down that means that those who purchase their shares at a cheaper price will get an even greater dividend yield than me. That is great for them, but I am not jealous. Because I have already locked in the dividend yield target that I was after.
*It would be good to see more about ethical investing-is this a new thread?
The 'Ethical Investment' thread has been reawakened.
Technical Analysis (TA) and buying and selling stocks as they break through 50/100/200 day moving averages: is there any evidence that this strategy works? What do the articles published in academic journals show? I tried to find some evidence via Wiley online library, but the results of research into this appeared quite mixed. https://onlinelibrary.wiley.com/action/doSearch?AllField=trading+stocks+using+technical+a nalysis
Etc…
It is all done on statistical analysis of patterns, based on what 'the market', or more correctly 'the collective behaviour of traders' has done in the past. Although the maths behind this is sophisticated, that doesn't compensate for failing to grasp a much more basic concept in probability and statistics, the independent trail, which I will illustrate with an example.
Suppose you are able to develop a technical analysis strategy which is 95% effective. If you select a share and use this strategy to trade it, how much money can you expect to make over a lifetime of trading? You may think that I haven't given you enough information to answer this question. But the answer is you will lose all of the money you put up -everything. This is because each individual trade is what is in statistical terms an 'independent trail' and the success of one individual trade does not influence the next. So no matter how much money you accumulate in the initial trades with your strategy, it is only a matter of time before you enter that 1 in 20 losing trade, at which point all of your capital is gone for good.
SNOOPY
Originally posted by Snoopy: My strategy is to value a company first. Then I will most likely have to wait until the share price comes down to below that level, which if you worry about trends (I don't), means you must wait for your price to be hit. And that can only happen in a downtrend.
So use fundamental analysis, right?
The downtrend comment implies that you always value a company at below the value that is asked by the sharemarket at the time of your initial analysis, right?
If, so it means sitting on cash or a debit facility while waiting for the price to come down to that point, right?
Originally posted by Snoopy: So no matter how much money you accumulate in the initial trades with your strategy, it is only a matter of time before you enter that 1 in 20 losing trade, at which point all of your capital is gone for good.
This 1 in 20 example is the Russian roulette analogy again (with a 20 bullet revolver).
What I don’t understand about the example is that if I invest the capital I have allocated to one company (or ETF) in 20 tranches, and the 1st 19 trades are successful, but the 20th is a losing trade, I still have the initial 19/20 of my capital that I previously invested so I haven’t lost all of my capital unless the company itself goes bankrupt, right?
Somehow I am not understanding the example.
Snoopy-thanks for all of the wisdom and resurrecting the ancient ethical investing thread.
Snoopy
23-05-2022, 09:53 PM
Originally posted by Snoopy: My strategy is to value a company first. Then I will most likely have to wait until the share price comes down to below that level, which if you worry about trends (I don't), means you must wait for your price to be hit. And that can only happen in a downtrend.
*So use fundamental analysis, right?
Yes
*The downtrend comment implies that you always value a company at below the value that is asked by the sharemarket at the time of your initial analysis, right?
That is a function of the NZ sharemarket being fairly fully valued, even despite the current correction. As a value investor, a share being beaten down in price attracts my attention. There was a time when that invariably meant a buying opportunity. These days I find I have more homework to do than in the past, to find out if such a share really is a bargain.
*If, so it means sitting on cash or a debit facility while waiting for the price to come down to that point, right?
Yes, cash is generally seen as a poor long term investment. But it does provide opportunity, should unexpected market events through up a bargain price for an out of favour asset. I like to keep some cash on hand for this reason.
Originally posted by Snoopy: So no matter how much money you accumulate in the initial trades with your strategy, it is only a matter of time before you enter that 1 in 20 losing trade, at which point all of your capital is gone for good.
This 1 in 20 example is the Russian roulette analogy again (with a 20 bullet revolver).
What I don’t understand about the example is that if I invest the capital I have allocated to one company (or ETF) in 20 tranches, and the 1st 19 trades are successful, but the 20th is a losing trade, I still have the initial 19/20 of my capital that I previously invested so I haven’t lost all of my capital unless the company itself goes bankrupt, right?
Somehow I am not understanding the example.
My example was meant to explain the perils of 'sequential trades', where your capital is either 'all in' or 'all out'. Your example is more akin to 'dollar cost averaging', where you don't have a strong conviction on exactly what dollar value price point, of a particular fund or share represents a bargain. Dollar cost averaging is, I think, still a respected investment technique.
SNOOPY
kiora
05-06-2022, 05:31 PM
"Trust is the second most important factor for consumer buying decisions"
And I might add investing in companies. Are they doing what they say they are going to do?
https://businessdesk.co.nz/article/the-life/walk-the-talk-why-trust-is-your-most-valuable-business-asset
After (foolishly in hindsight) setting up weekly/monthly payments into managed funds and ETF's recently, it was interesting to compare the ways in which the different NZ portals-Kiwisavers, investment funds, stockbrokers and investing platforms present information about how to consider the options. The information on various sites can be confusing- esp. for a company like Superlife with dozens of Kiwisaver and Investment options. Maybe that's one reason people buy property instead.
I hoped flowcharting it would clarify things for me, but really it just oversimplified the overly complex. Attached/ linked here nevertheless.
13885
kiora
11-06-2022, 08:22 PM
But why would an investor pay for an advisor to manage a cash holding?
But why would an investor pay for an advisor to manage a cash holding?
Because in NZ, the gov't has imposed the Kiwi Saver scheme where these investment managers dictate the 'risk level' of a fund, based on the % proportion of cash (bonds / interest bearing deposits) : to equity ratio. The higher the portion set aside for cash or fixed return investments, the lower the risk, and therefore the lower the return. Quite simply cash holding by all conventional managed funds in NZ is a proxy to the amount of risk the investors chooses ; ie conservative -> aggressive risk levels set out in all those Kiwi Saver funds.
Is this a good thing? Hell no but that's how FMA has regulated the markets in NZ. I don't understand why the NZ gov't has not understood these problems that also exhibit on Wall Street where investors lose $ for non-performance. If there's a chance to dissuade investment into owning multiple houses for tax free capital gain, there's no chance in hell that Kiwi Saver or any investment into stocks : cash/bonds will provide a better after tax return than owning leveraged mortgage housing.
DarkHorse
12-06-2022, 05:52 PM
I recently listened to a podcast of Bryan Lawrence from Oakcliffe Capital, which has significantly outperformed the S & P 500 since 2006.
https://www.theinvestorspodcast.com/episodes/beating-the-sp500-since-2004-w-bryan-lawrence/
I highly recommend it to both novice and experienced active sharemarket investors.
His 5 rules/questions happen to match my checklist, but he explains their rationale far better than I could, with detailed reasons and examples. The rules are:
1. “Do we understand this business? Is it within our circle of competence? Is it a business that management makes understandable?”
2. “Is it a great business?” ie one with durable cashflows
eg Does the business provide more value to customers than what the business is charging those customers?
Is the business operating in an industry structure that is favorable? ie does it have a clear moat/competitive advantage, monopoly or duopoly
3. “Is the management team aligned with us?" This is most common with founder-led businesses
4. "Is the valuation cheap relative to the cashflows the business is likely to produce for shareholders?"
5. "Is the low valuation based on a temporary misconception?"
I find examples of 4 and 5 are far more likely among neglected small/microcaps - and it's also likely that due to flying under the radar, great businesses may not be recognised as such. Often for smallcaps to be great businesses means being market leader in an unsexy niche area.
I recently listened to a podcast of Bryan Lawrence from Oakcliffe Capital, which has significantly outperformed the S & P 500 since 2006.
https://www.theinvestorspodcast.com/episodes/beating-the-sp500-since-2004-w-bryan-lawrence/
I highly recommend it to both novice and experienced active sharemarket investors.
His 5 rules/questions happen to match my checklist, but he explains their rationale far better than I could, with detailed reasons and examples. The rules are:
1. “Do we understand this business? Is it within our circle of competence? Is it a business that management makes understandable?”
2. “Is it a great business?” ie one with durable cashflows
eg Does the business provide more value to customers than what the business is charging those customers?
Is the business operating in an industry structure that is favorable? ie does it have a clear moat/competitive advantage, monopoly or duopoly
3. “Is the management team aligned with us?" This is most common with founder-led businesses
4. "Is the valuation cheap relative to the cashflows the business is likely to produce for shareholders?"
5. "Is the low valuation based on a temporary misconception?"
I find examples of 4 and 5 are far more likely among neglected small/microcaps - and it's also likely that due to flying under the radar, great businesses may not be recognised as such. Often for smallcaps to be great businesses means being market leader in an unsexy niche area.
You will find his rules have been taken from Warren Buffet. No need to follow some 'new unicorn' when the original is all you need.
kiora
19-06-2022, 10:34 AM
"“The goal is not to have the longest train, but to arrive at the station first using the least fuel.”"
"Tom Murphy thought that a business with a moat is very hard to find and for this reason alone he preferred to put capital to work in the business where he had the greatest advantage"
"”A leader is best when people barely know he exists, not so good when people obey and acclaim him — worse when they despise him. But of a good leader who talks little when his work is done and his aim is fulfilled, they will say: We did it ourselves.” "
"It is tremendously cost efficient to have a
culture that is based on trust, since you don’t have the cost or the inefficiency associated
with layers of management that try to act as a substitute"
https://mcusercontent.com/ea8e8120d9fd32d5e5e17bf67/files/3045666b-7cbd-3ed1-e086-ab74200ee315/6._A_Dozen_Things_Ive_Learned_from_Tom_Murphy_Abou t_Capital_Allocation_and_Management.pdf
kiora
19-06-2022, 11:24 AM
Charlie Munger The Psychology of Economics
https://www.youtube.com/watch?v=zNxsAhc6sk8
The social proof of this site?
The power of reinforcement & social proof
The Federal reserve and other central banks/ governments print money (sic.). And inflation generally keeps up. But it hasn’t since the mid-90’s:
https://www.longtermtrends.net/m2-money-supply-vs-inflation/
And if money supply keeps exceeding inflation, you’d expect inflation to eventually appear and knock back the sharemarket, but it took 20+ years, during which the sharemarket’s come through pretty well. So if your strategy was to time the market on the excess money supply signal, you’d have lost out on a lot of gains.
But if absolute money supply is shrinking (not just a reduction in the rate of printing, but an absolute reduction in the amount of money in the economy):
https://tradingeconomics.com/united-states/money-supply-m2
does this mean the Federal reserve shreds money also?
The Federal reserve and other central banks/ governments print money (sic.). And inflation generally keeps up. But it hasn’t since the mid-90’s:
https://www.longtermtrends.net/m2-money-supply-vs-inflation/
And if money supply keeps exceeding inflation, you’d expect inflation to eventually appear and knock back the sharemarket, but it took 20+ years, during which the sharemarket’s come through pretty well. So if your strategy was to time the market on the excess money supply signal, you’d have lost out on a lot of gains.
But if absolute money supply is shrinking (not just a reduction in the rate of printing, but an absolute reduction in the amount of money in the economy):
https://tradingeconomics.com/united-states/money-supply-m2
does this mean the Federal reserve shreds money also?
The charts are just that and it's based on how you interpret the inflation over which time period. M2 has not decreased over the past 1+ year. Only a fool considers inflation as the result of a 2 or 3 months period. Look again in 2021 vs how much the M2 supply has grown to now. The end result without a doubt has been inflation. The second chart shows the M2 growth rates. Too late, the cat is out of the bag once the $ has been printed, the cat is out of the bag and inflated is the end result. As my macro-econ prof at uni explained, there's always a delay on the aggregate spending and the time inflation is realized. The central banks adjust interest rates by means to control M2 but it's kinda like a moving target and control is is much like a using a wobbly steering wheel. Look at that peak of M2 during the 2020 Covid year. That's the result of gov't spending world wide trying to control deflation. When they overspend or print, then inflation is the end result which always occur later on. This scenario has been explained by Warren Buffet during the GFC where he said massive spending much occur in order to control deflation. He also said the prescription also comes at a cost... called 'inflation'.
Okay. That all makes sense. There was still a large lag from the GFC until inflation took off a year ago, and maybe only then because of the Covid stimulus, then exacerbated by the Ukraine war.
Checking again to answer my last question, it seems the absolute money supply doesn’t shrink, it’s just a reduction in the rate of printing/ spending. The Federal reserve doesn’t shred money, only inflation does(?).
A trader would have been pretty canny to have rode those market gains up to the end of last year, before exiting. Inflation may have ordinarily been expected to increase earlier- prior to Covid.
Thanx for the response…
kiora
21-06-2022, 08:31 PM
"The Federal reserve doesn’t shred money, only inflation does(?)."
Seems likely that the drop in asset values of crypto's & shares has shredded a lot more money than inflation lately?
"The Federal reserve doesn’t shred money, only inflation does(?)."
Seems likely that the drop in asset values of crypto's & shares has shredded a lot more money than inflation lately?
Drops in asset values don't spur on to inflation. I would say the vast majority of the inflationary pressures came from gov't expenditures (either directly, or gov't hand outs like Covid Subsidy Payments). If gov'ts did not step in to curb deflation, we would be in some serious troubles that could lead on to more wars.
Just as easy as housing values were inflated by cheap $, the other way can happen easily too. We are in a period of rising interest rates and when you take houses (which has a limited supply), generally more $ is taken out of the economy that go to service higher cost mortgages.
“Seems likely that the drop in asset values of crypto's & shares has shredded a lot more money than inflation lately?”
Kiora… You are suggesting that the amount of investors’ money that goes into a company's share price as the price rises from $4 a share to $10 a share is not necessarily the equivalent amount of money that is taken out by dis-investors when the shares are sold off and the price drops to $4 each again?
And for the absolute money supply reduction question I asked earlier, I will post the question on the NZX bear thread now that it's reduced in toxicity and someone has mentioned it there.
kiora
27-06-2022, 09:04 PM
Worth sharing again
"Strong hands or weak hands
By Colin Twiggs
June 27, 2022
“Nowadays people know the price of everything and the value of nothing.”
~ Oscar Wilde
Strong hands are long-term investors, including most institutional investors, who focus on intrinsic value and are insensitive to price.
Weak hands and leveraged investors are highly sensitive to price. They follow the news cycle in an often unsuccessful attempt to to time purchases and sales according to short-term, often random, fluctuations in price.
Weak hands respond emotionally to price movements -- making it difficult to be objective in their decisions to buy or sell -- while strong hands focus on dividends and other measures of long-term value.
Strong hands recognize that the biggest obstacle to sound investing is their own emotional response to rising or falling prices. Weak hands submit to the psychological pressure, make frequent buy and sell decisions, and find it difficult to be objective. Strong hands detach themselves as far as possible from the price cycle and the emotional pressures that accompany it.
At the peak of the investment cycle, weak hands pay way above fair value for stocks, while strong hands resist the urge to buy when price exceeds their own objective view of long-term fair value.
Fair Value
As confidence decays and prices fall, weak hands are shaken out of their positions. Margin calls force some to liquidate while others sell through through fear -- failing to recognize that anxiety is the primary cause of falling prices. Some try to hold on to their positions but eventually succumb to the pressure. The mental anguish of watching their stocks fall often drives them to sell at way below fair value -- just to end the pain.
Strong hands are patient, independent of the herd, and unmoved by the wild emotional swings of bull and bear markets. They wait for stock prices to fall to below fair value, when opportunity is at its maximum. Stocks that are gradually recovering from a steep sell-off and scarce retail buyers are signs that a bottom has been reached.
Recency bias
One of the key benefits of years of investing, through several stock market cycles, is the ability to recognize the familiar signs of euphoria in a bull market and despondency in a bear market. When it seems that the bull market will never end, that is normally a sign that risk is elevated. Conversely, opportunity is at its maximum when an air of despair and despondency descends on the investing public.
Don't confuse price with value
Price seldom equates to value.
Short-term investors confuse price with value, making them vulnerable to wild price swings which can weaken the resolve of even the most hardened investors.
Long-term investors hold the majority of their investments through several investment cycles, pruning only those stocks where long-term revenue growth or profit margins have been permanently affected and are unlikely to recover.
Supply and demand
Many readers are familiar with supply and demand curves from basic economics. For those who are not, here's a quick refresher:
The supply curve, represented by the red line on the chart below, represents the quantity available for sale (bottom axis) at any given price (left axis). The higher the price, the greater the supply.
The demand curve, represented by the blue line on the chart below, represents the quantity that buyers are willing to purchase (bottom axis) at any given price (left axis). The lower the price, the greater the demand1.
Price is determined by the intersection of the two curves, maximizing the value achieved -- at quantity sold (Q1) and price (P1) -- giving value of Q1*P1.
Supply & Demand
Bear markets
In a bear market, the supply curve moves to the right as weak hands are influenced by falling prices and a negative media cycle. Note that the bottom end of the curve shifts a lot more than the top -- strong hands are relatively unmoved by market sentiment.
Price falls steeply, from P1 to P2, as weak hands increase the quantity available for sale. Volume sold increases from Q1 to Q2.
Bear Market
We need to be careful not to equate the price at P1 or P2 with value. They may reflect the marginal price at which you can acquire new stock (or sell existing holdings) but they do not reflect the price at which strong hands are prepared to sell. That is why takeover offers are normally priced at a substantial premium to the current traded stock price. If you had to increase the quantity that you want to purchase to Q3, you would have to move up the supply curve, to the right, and price increases to P3 in order to attract more sellers2.
Market capitalization, likewise, is simply the number of shares in issue multiplied by the current traded stock price and is not a reflection of the intrinsic value of a company.
Conclusion
Investors need to have a clear idea of their investment time frame and adjust their approach accordingly.
One of the worst possible mistakes is indecision. If undecided, you are likely to be caught between two stools, buying late in an up-trend and selling late in a down-trend.
If you are a weak hand, it is far better to recognize that. Resist buying near the top of the cycle; apply sound money management -- position-sizing is vital if you are focused on price; sell early, at the first signs of a bear market; and never, ever trade against the trend.
If you are a strong hand, never confuse price with value. Focus on dividends and other long-term measures of value; stay detached from the herd; and have the patience to wait for opportunity -- when prices are trading at way below fair value.
Notes
Discussion of inelastic supply curves and negative-sloping demand curves is beyond the scope of this article.
P3 will shift to P3* in a bear market.
Acknowledgements
Hat tip to RBC Wealth Management for the investment cycle chart to which we added fair value.
The original article was published for Patient Investor subscribers on June 26, 2022.
Quote for the Week
“The stock market remains an exceptionally efficient mechanism for the transfer of wealth from the impatient to the patient.”
~ Warren Buffett "
kiora
01-07-2022, 11:35 AM
That's a maybe this OR that?
"The Bear Market Story and What Next in Six Charts"
https://www.sharecafe.com.au/2022/06/30/the-bear-market-story-and-what-next-in-six-charts/
kiora
03-07-2022, 04:06 PM
Not to do lessons in hindsight
" it’s easy to see how Tiger Global got into its current predicament.
“They’ve just been winning, and winning, and winning,” he says. “I think one thing that happens to people who win, win, win, win, is they get overconfident, and they can’t imagine a scenario where they’re not winning.”
"As the Tiger 40 stocks have tanked, the hedge funds that own them have gotten margin calls asking for more cash or collateral for their loans and redemption notices from investors wanting their money back. That in turn created more selling, which created even more selling, and so on. The same feedback loops that were operative on the way up are working in reverse on the way down."
https://mcusercontent.com/ea8e8120d9fd32d5e5e17bf67/files/80c40c2f-3876-b788-cd39-042e47c74777/2._Masters_of_the_Bubbleverse.pdf
kiora
08-07-2022, 01:30 PM
If you are a trader someone could be monitoring you
"The law required financial service providers to report all overseas transactions worth more than $1000 to Police and the Reserve Bank"
https://www.nzherald.co.nz/business/bnz-rebuked-over-50000-cash-transactions-as-coding-error-brings-bank-afoul-of-anti-terror-law/AQYYKZDLU6PTNVXNLEKROON5ZI/
Put it this way: if the money supply increases by 40% (over 2 years), then we should expect the price of shares to increase by a similar amount(?)
https://www.investmentwatchblog.com/the-us-money-supply-has-increased-over-41-in-the-last-2-years-the-largest-2-year-increase-in-history/
https://www.longtermtrends.net/m2-money-supply-vs-inflation/
kiora
13-07-2022, 09:02 PM
Put it this way: if the money supply increases by 40% (over 2 years), then we should expect the price of shares to increase by a similar amount(?)
https://www.investmentwatchblog.com/the-us-money-supply-has-increased-over-41-in-the-last-2-years-the-largest-2-year-increase-in-history/
https://www.longtermtrends.net/m2-money-supply-vs-inflation/
Not only shares. What about that extra money "invested" in bonds & Crypto
kiora
13-07-2022, 09:02 PM
"SEVEN GUILTS IN TRADING PSYCHOLOGY"
https://www.tradingview.com/chart/VNINDEX/kpFuqcVW-SEVEN-GUILTS-IN-TRADING-PSYCHOLOGY/?utm_source=Weekly&utm_medium=email&utm_campaign=TradingView+Weekly+167+%28EN%29
Not only shares. What about that extra money "invested" in bonds & Crypto
Yes. A proportion of the increasing money supply is going into goods & services, property, commodities and art, and so on, through the economy, so basically every price is inflated... where else can it go?
kiora
20-07-2022, 06:18 AM
"Charlie Munger Not Worried About Inflation, Economy"
"He owns radically different businesses, which is a Berkshire-type thing. He’s got just three big businesses in 12 years. Berkshire’s top 40 deals in its whole history amount for most of our achievement. Life is a game where you work very hard and deal only occasionally.
It’s very hard to acquire unrelated companies, earn a higher return on capital and pay market prices for them. Most people who try and do that, fail. And the only reason that Berkshire and Stonehouse succeed is that we don’t do it very often, and we’re pretty careful.
“We’re simply looking for great businesses to acquire,” Jennings added. “We want business owners to know there is a good, credible, long-term buyer available to them.”"
https://finance.yahoo.com/m/6916d911-e84f-3e96-8f5f-cc794bccee47/charlie-munger-not-worried.html
https://www.stonehousecorp.com/
kiora
25-07-2022, 08:52 AM
Time to get busy on high quality companies
""You can depend upon the share market to do the right thing. But only after it has exhausted every other possibility."
And so it is with great delight that I have been witnessing the return of buyers to share prices in some of the highest quality and resilient business models listed on the ASX. Think CSL (ASX:CSL), Cochlear (ASX:COH) and ResMed (ASX:RMD), but also Amcor (ASX:AMC), TechnologyOne (ASX:TNE) and Woolworths (ASX:WOW)."
Note, for example, how both Objective Corp (ASX:OCL) and WiseTech Global (ASX:WTC) issued a positive market update in July. Yes, of course, one can potentially make a higher return out of a share price that has fallen a lot further, but what is the real trade-off when adjusted for the risks involved, as well as when taking a longer-term view?
Lower quality fly-by-nighters tend not to perform well over a longer period of time. This is the confusing message the share market throws at bargain hunters: it does not account for the risks involved."
https://www.livewiremarkets.com/wires/phase-one-the-quality-recovery
https://www.livewiremarkets.com/wires/5-years-from-today-which-stocks-will-have-the-highest-returns-on-capital
kiora
28-07-2022, 09:11 PM
""My usual answer is that whenever we’re not in a recession, we’re heading toward one. The question is when,” writes Marks,
But he insists that shouldn’t change the way you invest. Why not?
"Because the possibility - or even the fact - that a negative event lies ahead isn't itself a reason to reduce risk; investors should only do so if the event lies ahead and it isn't appropriately reflected in asset prices," he writes."
https://www.livewiremarkets.com/wires/howard-marks-3-attributes-of-investors-who-will-always-outperform
kiora
28-07-2022, 09:14 PM
"EDITED TRANSCRIPT
LW: How do you evaluate companies for their competitive advantage?
Matthew Landy: We see five sources of an economic franchise. And sometimes companies can have multiple, and sometimes it's only one.
So one is a natural monopoly. Infrastructure companies tend to fit that category. So once you build an electricity transmission grid, for example, there's no point replicating that. The costs involved are so enormous that it makes sense for only there to be one provider of the electricity transmission grid.
Brands clearly can be very powerful. In particular, the consumer sector obviously. It creates loyalty, and it often enables you to earn very high-profit margins on your product.
Intellectual property gives you a period of exclusivity over a product or service. We see that a lot in the healthcare space, particularly in medical devices.
Network effects - I mentioned Visa, MasterCard, and Google arguably have that as well, where effectively, the more people that use the product, the more valuable it becomes to consumers over time. It's a very rare competitive advantage, but when it happens, it's incredibly powerful.
Switching costs is another, and you see this a lot in the software industry. It's where a product, the nature of a product or service means that it's hard for customers to switch to a competitor. "
https://www.livewiremarkets.com/wires/three-global-stocks-with-the-competitive-advantage-to-beat-their-rivals-and-one-trap-card
kiora
31-08-2022, 08:02 PM
"THE DO-NOTHING TECHNIQUE"
https://www.tradingview.com/chart/SPY/bEB4PbaX-The-Art-Of-Do-Nothing-In-Trading/?utm_source=Weekly&utm_medium=email&utm_campaign=TradingView+Weekly+174+%28EN%29
kiora
22-09-2022, 08:58 AM
"No, the Buffett Indicator doesn’t mean markets will definitely crash. However, there is a more than reasonable expectation of disappointment in future market returns."
https://seekingalpha.com/article/4542061-does-buffett-indicator-say-markets-going-to-crash?mailingid=29123151&messageid=must_reads&serial=29123151.665804&source=email_must_reads&utm_campaign=Must+Read+September+21%2C+2022&utm_content=seeking_alpha&utm_medium=email&utm_source=seeking_alpha&utm_term=must_reads
kiora
25-09-2022, 04:15 AM
"How to survive the worst bear market of all time"
https://finance.yahoo.com/news/how-to-survive-the-worst-bear-market-of-all-time-120034754.html
Aaron
26-09-2022, 04:28 PM
"How to survive the worst bear market of all time"
https://finance.yahoo.com/news/how-to-survive-the-worst-bear-market-of-all-time-120034754.html
A decade going nowhere in stocks. Actually 16 years 1966 to 1982, reading closer it only broke out in 1982 so you were down on 1966 in 1982 but onwards and upwards since then.
If it is shaping up as long term and less transitory inflation, I wonder how many people nearing 65 are in equities. Bummer to hit retirement just as your portfolio craps out for the next 10 years.
It could increase the size of an overreaction if people nearing retirement in passive index funds get spooked as it will feed on itself as selling pushes prices lower encouraging further selling. A bit like a bank run or the end of a ponzi scheme.
Also I was going to add margin debt as a potential issue, but that is already coming down although if Fig 1 in the article below is to be believed still pretty high historically. it has come down to the peaks reached in 2000 and 2008. Leverage does wonders when asset prices go up, and no one believes asset prices can ever go down, so why not.
https://www.currentmarketvaluation.com/models/margin-debt.php
Janet Yellen reckons we will never see another financial crisis in our lifetimes so I guess we should not worry too much. Ex fed chair and current secretary of the treasury, she knows a lot.
She is also 76yrs old so maybe she has some health problems we don't know about. "Lifetime" is relative.
https://www.usnews.com/news/articles/2017-06-27/janet-yellen-i-dont-see-a-financial-crisis-in-our-lifetimes
And in keeping with the thread.
It is time in the market not timing the market.
Asset prices always go up in the long term.
A decade going nowhere in stocks. Actually 16 years 1966 to 1982, reading closer it only broke out in 1982 so you were down on 1966 in 1982 but onwards and upwards since then.
If it is shaping up as long term and less transitory inflation, I wonder how many people nearing 65 are in equities. Bummer to hit retirement just as your portfolio craps out for the next 10 years.
It could increase the size of an overreaction if people nearing retirement in passive index funds get spooked as it will feed on itself as selling pushes prices lower encouraging further selling. A bit like a bank run or the end of a ponzi scheme.
Also I was going to add margin debt as a potential issue, but that is already coming down although if Fig 1 in the article below is to be believed still pretty high historically. it has come down to the peaks reached in 2000 and 2008. Leverage does wonders when asset prices go up, and no one believes asset prices can ever go down, so why not.
https://www.currentmarketvaluation.com/models/margin-debt.php
Janet Yellen reckons we will never see another financial crisis in our lifetimes so I guess we should not worry too much. Ex fed chair and current secretary of the treasury, she knows a lot.
She is also 76yrs old so maybe she has some health problems we don't know about. "Lifetime" is relative.
https://www.usnews.com/news/articles/2017-06-27/janet-yellen-i-dont-see-a-financial-crisis-in-our-lifetimes
And in keeping with the thread.
It is time in the market not timing the market.
Asset prices always go up in the long term.
I'll like to bring this chart for reference:
https://i.imgur.com/bH3eu4X.png (https://i.imgur.com/bH3eu4X.png)
Timing the market does indeed matter. Warren Buffet himself insists this is important when PEs are sky high, he's simply not interested in buying anything. It was not until recently he started buying stocks, but prior 10+ years, he pretty much did nothing with few acquisitions. Of course he would advise that no one with certainty can 'time the market' year after year, he does also say there needs to be a relevance to if share prices are overvalued or not.
There's a misconception that at age 65, one would hope there's enough of a nest egg in their retirement portfolio. However this is not always the case (and in NZ's case, I would say those in such Kiwi Saver schemes would be at most risk or disadvantaged). On NewsTalkZB every Sunday there's Finance hour but i've never had the free time to get around to calling in. My concern? Well it's the fundamental problem of Kiwi Saver not delivering to those that look for retirement at age 65.
The problem with NZ's Kiwi Saver scheme is it's geared for making $ the most to IRD, and to a lessor part, the managed funds that charge mgt fees. We are talking about taxing of paper gains year after year which has a devastating effect on the total compound returns on the portfolio over the long term. Let me post a reference to the father of index ETF and founder of the Vanguard Funds 'John Bogle':
https://www.rebalance360.com/john-bogle-how-to-lose-66-of-your-retirement-return/
“Let’s assume the stock market gives a 7% return over 50 years. If you get to 7%, each $1 goes up to $30. If you get to 5% (that would be 7% less the industry’s typical 2% all-in costs), you get $10,”
“So $10 versus $30. You put up 100% of the capital, you took 100% of the risk, and you got 33% of the return! As I say to people, if that strikes you as a good deal, by all means do it!”
There is no disputing this outcome. You can't dispute the math in compound interest. Likewise what John Bogle says, the math in compound costs equally applies. So what you have in NZ is a situation where Kiwi Saver taxes the individuals that make contributions during years where they are most productive. The more the individual earns in a year, the more they can contribute to KS, and the HIGHER the income tax bracket they end up paying (which the managed fund would tax the paper gains in the same high tax bracket rate as the individual's income tax rate). But when the individual ages on in their 60s and 70s, well their earning potential is a lot less, or for most, is entirely gone as they end their day job income and end up in a low income tax bracket situation. What has happened to their KS portfolio? Well 2/3rds of it was robbed by IRD and the managed funds mgt fees.
Hop over to N. America and the emphasis for retirement savings is purely based on maximising compound returns. Throughout many decades, no capital gains tax is paid but instead, the model relies on "deferred taxation". Individuals there contribute into their 401K or RRSP (Canada), by REDUCING their taxable income. What does this do? Well these are pre-taxed, taxable incomes so if a person makes $100K/year, he could contribute $10,000 to his pension plan which lowers his taxable income to $90K/year and thus place the individual at a LOWER income tax bracket. Those contributions again, grow tax free until retirement. At age 65, the individual would have exited the job market and is on LOW income, so they will elect to withdraw what ever portion they desire and pay the tax accordingly. There is full control of how much they want to pay ; if there's a desire to buy a boat or a motorhome, they withdraw more. If the stock market is down and they just only want enough to pay the house bills, they withdraw little and pay less taxable income. This is a scheme that is far more elegant than the NZ Kiwi Saver because it allows investors to withhold their contribution room (which accumulates each year that they don't fully contribute each year), and wait until there's market crash for when they make that larger contribution.
In the NZ sense with Kiwi Saver, well you're basically locked in on set contributions of 3% + 3% by the employer. There's no deferment of these funds to factor if there's a market crash in the future. And the fund managers in KS funds certainly don't hold on the contribution holdings thinking they could buy lower.
Don't forget, if the KS Funds invest in overseas shares, FIF kicks in for which so far this year the S&P500 has lost over 20%. If the FDR has been paid in previous years to the peak of 2021, why should FDR still apply on the rebound going back up in future years? If 2023 proves that the S&P500 goes up 10%, then IRD gets to double dip despite the portfolio balance is lower than pre 2022.
Aaron
27-09-2022, 08:59 AM
SBQ I may not have understood all of it but that chart highlights my point.
Sometimes you don't have 25 years to recover your investment, especially if you have just retired and did not have a lot invested so cannot live on the income.
Comparisons above were against the 1970s so that is 16 years compared with 25yrs for the 1930s. I wonder what period we will rhyme with?
With more active central banks the down times are shorter each time. March 2020 was a blink and you missed it moment.
The PIE regime was setup to cap tax rates on savings at 28% to encourage people on the top tax rate to save for retirement.
Not sure how large funds calculate taxable profit. Years ago passive funds did not have to pay tax on capital gains but active funds did. Not sure about now. In down years individual investors can switch to the CV method for FIF income calculations, not sure about fund managers.
Agreed fund managers fees seem like a rip off as they are based on the amount you invest rather than the time it takes them to shuffle about funds. I guess that way they capture a percentage of your gains over time as well. Not sure why this is but you would hope that fees come down as Kiwisaver balances grow, but I would not hold my breath.
Personally I put in $1,042 a year to get the tax credit. Not a big fan of managed funds.
SBQ I may not have understood all of it but that chart highlights my point.
Sometimes you don't have 25 years to recover your investment, especially if you have just retired and did not have a lot invested so cannot live on the income.
Comparisons above were against the 1970s so that is 16 years compared with 25yrs for the 1930s. I wonder what period we will rhyme with?
With more active central banks the down times are shorter each time. March 2020 was a blink and you missed it moment.
The PIE regime was setup to cap tax rates on savings at 28% to encourage people on the top tax rate to save for retirement.
Not sure how large funds calculate taxable profit. Years ago passive funds did not have to pay tax on capital gains but active funds did. Not sure about now. In down years individual investors can switch to the CV method for FIF income calculations, not sure about fund managers.
Agreed fund managers fees seem like a rip off as they are based on the amount you invest rather than the time it takes them to shuffle about funds. I guess that way they capture a percentage of your gains over time as well. Not sure why this is but you would hope that fees come down as Kiwisaver balances grow, but I would not hold my breath.
Personally I put in $1,042 a year to get the tax credit. Not a big fan of managed funds.
With inflation higher than 1979-1980s we could be in for the biggest bull run in the past century. In that chart, from 1985 to 1995 you has a massive bull run. Yes major crashes from 1 time events are very short lived. But what we have with inflation will span for years and when that settles down, then things start to get exciting.
The model with Kiwi Saver is all funds pay tax based on the individual's taxable income. However in that mix of stock holdings, you can have NZX shares that attract no capital gains tax, end up paying a lot of taxes on the dividends. Take The Warehouse Group which has paid consistent dividends for the past 20 years but it's share price has gone nowhere (worse if you factor the cost of inflation) and the individual is worse off when they are taxed on dividend income instead of NZ capital gains.
The Comparative Value Method does not apply to fund managers!! If I recall correctly in my readings, IRD states that all fund operators (passive or active) who receive contributions for investment, must use the FDR method. Either way each method, on a negative year, ends up having no tax to pay.
The PIE regime just rubs more insult to the small investor who are on lower income levels. Why should individuals on the high income tax bracket, get the benefit of only paying 28% on their Kiwi Saver fund when their annual income tax bracket could be 30%, 33%, or 39%??? It's the same kind of insult why the wealthy are able to buy multiple houses and hold in excess of 10+ years so all the capital gain is tax free.
I honestly believe Bill English did a disservice to NZ by introducing Kiwi Saver. The #1 beneficiary to this scheme is IRD. There's no disputing this math as John Bogle said, if the Market Return is 7% a year for 50 years, and the individual that has to pay tax on those market return gains year after year and also see's managed funds taking a cut, he/she may be lucky to see 5% per year net for the Market Return. However the latter only gets 1/3rd of the total gain while the 2/3rd is pocketed mostly by IRD and expensive managed funds and the cut that financial advisers take.
I'm also very critical on Kiwi Saver funds that do nothing more than buy the Vanguard VOO (S&P500 index ETF) as a passive fund way of investing, but charge 10 times more in admin/mgt fees. I know myself it does not take much for a broker to enter the buy / sell details to buy the VOO for their clients. Certainly being able to charge 0.1% or 0.15% on something that the Vanguard VOO only charges 0.04% per year. What reason do these NZ fund managers have to charge so much more on top of the Vanguard fund fee?
This is why I advice people to open up a Hatch or Sharesie account directly and manage their own retirement fund. A married couple can contribute up to $50,000 each before FIF applies. So they essentially they can buy the same VOO index ETF as so called KS saver funds do, but only pay the same rate that Vanguard charges. This I believe is the best bet for the small individual as even with Kiwi Saver, that 3% employer matching contribution is grossly negated by the higher mgt fees of funds, and the tax they have to pay in those funds, year after year.
Aaron
27-09-2022, 01:37 PM
With inflation higher than 1979-1980s we could be in for the biggest bull run in the past century. In that chart, from 1985 to 1995 you has a massive bull run. Yes major crashes from 1 time events are very short lived. But what we have with inflation will span for years and when that settles down, then things start to get exciting.
The model with Kiwi Saver is all funds pay tax based on the individual's taxable income. However in that mix of stock holdings, you can have NZX shares that attract no capital gains tax, end up paying a lot of taxes on the dividends. Take The Warehouse Group which has paid consistent dividends for the past 20 years but it's share price has gone nowhere (worse if you factor the cost of inflation) and the individual is worse off when they are taxed on dividend income instead of NZ capital gains. Keep in mind NZ has imputation credits so that company dividends are not double taxed. One of the reasons American companies retain earnings and go for growth as they double tax dividends
The Comparative Value Method does not apply to fund managers!! If I recall correctly in my readings, IRD states that all fund operators (passive or active) who receive contributions for investment, must use the FDR method. Either way each method, on a negative year, ends up having no tax to pay. FDR is always 5% of the opening market value of your FIF investments so unless they have dropped to zero there will always be taxable income using this method
The PIE regime just rubs more insult to the small investor who are on lower income levels. Why should individuals on the high income tax bracket, get the benefit of only paying 28% on their Kiwi Saver fund when their annual income tax bracket could be 30%, 33%, or 39%??? It's the same kind of insult why the wealthy are able to buy multiple houses and hold in excess of 10+ years so all the capital gain is tax free. The whole monetary system is set up to favour the asset owners, PIE rates can drop to 10.5% or 17.5% if your income is lower but not the same as the benefit provided to someone on 39%.
I honestly believe Bill English did a disservice to NZ by introducing Kiwi Saver.Michael Cullen introduced Kiwisaver, we have discussed this before The #1 beneficiary to this scheme is IRD. There's no disputing this math as John Bogle said, if the Market Return is 7% a year for 50 years, and the individual that has to pay tax on those market return gains year after year and also see's managed funds taking a cut, he/she may be lucky to see 5% per year net for the Market Return. However the latter only gets 1/3rd of the total gain while the 2/3rd is pocketed mostly by IRD and expensive managed funds and the cut that financial advisers take. at tops IRD take 39% not sure your way of thinking on this. In an ideal world we would have no tax nor any need of a financial advisor but that is not realistic. Anything adds up compounded over 50 years. Interesting they compounded Kiwisaver returns over 48years to get a significantly large figure to spook investors around the GST on mgmt fees. https://www.nzherald.co.nz/nz/government-quietly-introduces-103-billion-tax-on-kiwisaver/OZTZMO6QKJJQOTUL5DG7UFEWA4/
I'm also very critical on Kiwi Saver funds that do nothing more than buy the Vanguard VOO (S&P500 index ETF) as a passive fund way of investing, but charge 10 times more in admin/mgt fees. I know myself it does not take much for a broker to enter the buy / sell details to buy the VOO for their clients. Certainly being able to charge 0.1% or 0.15% on something that the Vanguard VOO only charges 0.04% per year. What reason do these NZ fund managers have to charge so much more on top of the Vanguard fund fee?
This is why I advice people to open up a Hatch or Sharesie account directly and manage their own retirement fund. A married couple can contribute up to $50,000 each before FIF applies. So they essentially they can buy the same VOO index ETF as so called KS saver funds do, but only pay the same rate that Vanguard charges. This I believe is the best bet for the small individual as even with Kiwi Saver, that 3% employer matching contribution is grossly negated by the higher mgt fees of funds, and the tax they have to pay in those funds, year after year.
See in red, agreed better to cut out as many middle men as possible to get the best returns as long as you stick to indexes and hope the time in the market mantra works for the next 10-20 years.
Keep in mind NZ has imputation credits so that company dividends are not double taxed. One of the reasons American companies retain earnings and go for growth as they double tax dividends
Likewise in N. America where dividends have similar "dividend tax credit" to lessen the effect of double taxing. Still NZ's corporate tax rate of 28% vs Canada's 12-15% or US's 21%, without a doubt shareholders in corporations in these countries get to keep more of their earnings than in NZ. Compound those % differences over multiple decades and the difference again is remarkable despite NZ's imputation dividend tax credit (which varies a lot by % - not fully 100%).
FDR is always 5% of the opening market value of your FIF investments so unless they have dropped to zero there will always be taxable income using this method
I had a url that showed the difference between an individual investing directly vs through a managed or KS fund, showing the distinction that the individual can choose between FDR and CR while managed funds are only stuck with FDR. Perhaps someone else can clarify.
The whole monetary system is set up to favour the asset owners, PIE rates can drop to 10.5% or 17.5% if your income is lower but not the same as the benefit provided to someone on 39%.
This is so wrong in NZ. In Canada, they have this tax called "clawbacks" which essentially is to take away a benefit. If the senior retired person has too high of an income, then they LOSE portions of their superannuation gov't pension plan because they're already asset rich and the gov't pension plan was to mainly support those in need and not those who are already rich.
at tops IRD take 39% not sure your way of thinking on this. In an ideal world we would have no tax nor any need of a financial advisor but that is not realistic. Anything adds up compounded over 50 years. Interesting they compounded Kiwisaver returns over 48years to get a significantly large figure to spook investors around the GST on mgmt fees. https://www.nzherald.co.nz/nz/govern...TUL5DG7UFEWA4/ (https://www.nzherald.co.nz/nz/government-quietly-introduces-103-billion-tax-on-kiwisaver/OZTZMO6QKJJQOTUL5DG7UFEWA4/)
I also don't like the way they illustrated the math behind it on how much extra cost per year it would be to the investor. John Bogle's method is the proper way to illustrate the loss of compound returns when issues like high management fees or taxation come into the mix. Again to lose 2/3rds of a 7% per year return portfolio over 50 years? I would say the 5% example he stated would be more in line to what we have in NZ with KS or PIE funds.
But 2 posts before, the N. American way of managing investments for retirement is fare more elegant because it addresses the inequality between the rich and poor. It takes away benefits for those who had more luck in their portfolio returns, while maintaining social security pension for those that had sub-par performance. Individuals can accumulate their annual contribution rooms (on years where they don't fulling contribute 100%) and time things in according to the stock market conditions. Likewise at the end during retirement age 65, individuals choose how much they allocate to withdraw and since seniors are already on a low income tax bracket rate, they benefit by having all those years of stock market compounding gains to be taxed at a lower rate.
The way NZ does it with Kiwi Saver is they tax their investments based on what years they make the most $ on. So naturally in years where they are most productive and can contribute the most (say in their 30s, 40s, 50s), their investment returns would also be taxed at that same high rate. The effect of this is a considerable loss in compound returns. How does this help out to the low income families that struggle to save 3% of their annual income?? It doesn't. In Canada, removing a portion of their income so that it is not taxed, and invested for the retirement, is a far greater incentive than what we have here where more incentive is provided for the high income individuals in the 30%+ tax bracket (if they choose to invest in a PIE fund).
Also NZ doesn't have investment plans for people with disabilities which means they are treated with the same yard stick as everyone else (yet their earning ability would not be remotely the same as those without mental or physical disabilities). Canada has the RDSP plan where the gov't will match contributions by the disabled person + any contributions from family or friends, and these investments buying equities on the stock market, grow 100% tax free. How about holding assets in a trust? Well in NZ there's no distinction given to people with disabilities if they are the beneficiary of the trust, ie trust tax rate in NZ is 33%. But in Canada, the disable person can be the beneficiary of the trust, and that trust is only taxed at the individuals low income tax rate.
I could go on and on about Canada's incentive scope for education too... problems that in NZ in the past where Jacinda believes uni tuition is too expensive. In Canada you have RESP which addresses investing for the future for education (and these investments again, grow 100% tax free).
What is NZ doing??
Snoopy
28-09-2022, 12:33 AM
I had a url that showed the difference between an individual investing directly vs through a managed or KS fund, showing the distinction that the individual can choose between FDR and CR while managed funds are only stuck with FDR. Perhaps someone else can clarify.
SBQ, you are correct in what you say above.
https://moneykingnz.com/tax-on-foreign-investments-how-do-fif-and-estate-taxes-work/
From section 4:
"NZ domiciled funds always use the FDR method to calculate their FIF taxes – they have no option to apply the de minimis exemption or select the CV method in low return years. Given it’s reasonable to expect low or negative returns every few years (where the CV method is advantageous), this is a major disadvantage of these funds."
(Said within the context of talking about fund managers)
FDR is always 5% of the opening market value of your FIF investments so unless they have dropped to zero there will always be taxable income using this method
And Aaron is correct as well.
SNOOPY
Selling the losers and keeping the winners becomes a self fulfilling prophecy, as everybody sells down those stocks that have fallen in price, causing more people to sell their losers, and so on and so on...
voltage
20-10-2022, 12:16 PM
Why do we have such a complicated tax system for shares.
Any direct share purchases on the US market you have to pay 30% tax on the dividend unless you complete a W-8BEN form every 3 years which will reduce the tax to 15%.
This makes it a little more complicated doing it yourself.
My NZ sharebroker does not do this, says it is too complicated to offer this service.
I also use COMMSEC, a discount broker in Australia, and they show you how to do this at no charge
Using the FDR method to pay tax of 15% on dividends instead of 30% can make a big difference.
Why do we have such a complicated tax system for shares.
Any direct share purchases on the US market you have to pay 30% tax on the dividend unless you complete a W-8BEN form every 3 years which will reduce the tax to 15%.
This makes it a little more complicated doing it yourself.
My NZ sharebroker does not do this, says it is too complicated to offer this service.
I also use COMMSEC, a discount broker in Australia, and they show you how to do this at no charge
Using the FDR method to pay tax of 15% on dividends instead of 30% can make a big difference.
If you live in NZ then you pay tax at your marginal rate on worldwide income.
voltage
20-10-2022, 04:57 PM
I thought FDR is always 5% of the opening market value of your FIF investments at the start of the tax year, therefore no further tax on dividends is required
Snoopy
20-10-2022, 08:26 PM
I thought FDR is always 5% of the opening market value of your FIF investments at the start of the tax year, therefore no further tax on dividends is required
You are correct. There is no separate dividend tax under FDR. However, should any tax be deducted from your overseas dividends, you can use this to offset any tax due in NZ under FDR.
SNOOPY
kiwico
22-10-2022, 05:54 PM
Why do we have such a complicated tax system for shares.
Any direct share purchases on the US market you have to pay 30% tax on the dividend unless you complete a W-8BEN form every 3 years which will reduce the tax to 15%.
This makes it a little more complicated doing it yourself.
My NZ sharebroker does not do this, says it is too complicated to offer this service.
I also use COMMSEC, a discount broker in Australia, and they show you how to do this at no charge
Using the FDR method to pay tax of 15% on dividends instead of 30% can make a big difference.
Have a look at Interactive Brokers - much cheaper trading costs, much cheaper foreign exchange costs and next to no cost (if any) for W-8BEN.
I have a NabTrade account but I use this for ASX trades only. Interactive Brokers is much better for US, UK and Europe exchanges.
voltage
23-10-2022, 09:21 AM
Thanks, the only issue is trying to keep things simple. I have a full broker and use for some trades to get their research, Hatch for US, COMMSEC for the ASX exchange and Jarden Direct for NZ. This is too complex and fees using a full broker are high.
So, IB maybe the answer but is it a complicated platform to use.
Hatch says it is partnering with FNZ to develop one of New Zealand’s leading platforms for DIY investors.
This partnership will bring together Jarden Direct and direct retail investment service Hatch.
Maybe when this happens this could be the answer, a one stop shop.
kiora
16-11-2022, 09:15 AM
"I believe sustained market success begins, not with buying or selling stocks based on rumours, hunches or macroeconomic headlines, but with thinking like an owner of a business."
https://www.livewiremarkets.com/wires/three-timeless-lessons-for-long-term-investing
"Market noise amplifies those two great investing emotions: greed and fear. We punt on low-quality companies hoping to make a quick buck and sell high-quality companies because we did not realise the rising share price was following the company’s rising intrinsic value. "
kiora
23-11-2022, 11:09 AM
Investing in companies with great culture is rewarding
""culture eats strategy for breakfast""
https://businessdesk.co.nz/article/business-advice/culture-the-corporate-superpower-everyone-wants?utm_source=7am+Headlines+from+BusinessDesk&utm_campaign=6cdab97d6e-7am+Headlines&utm_medium=email&utm_term=0_617c2ef34a-6cdab97d6e-446239310
Jiggs
25-01-2023, 10:18 PM
I buy shares in NZ companies because I know about them. In 2022, with the news that banks were raising their interest rates, I figured almost all NZ trading company prices would start going down, so I changed to shares in banks, and to the biggest NZ outfits with a steady monthly income, Contact Energy, Spark and Chorus. I sold them all when prices started plunging in autumn, then bought them all again at the beginning of winter when they looked stupidly low-priced (except I forgot to re-buy Chorus!!!!)
This share package of mine is still worth about the same, but I am getting enough from the 5% dividends most of them pay to keep the local rescue helicopter in the air for a few minutes each year.
kiora
28-01-2023, 04:33 AM
"Buying and managing real estate is more of a business than it is an investment, and Buffett knows that his time is better spent choosing companies to invest in than it is running a real estate business.
Real estate is a business with incredible profit potential, but it’s important to realize that it’s a business and not a passive investment. Many individual investors get into real estate with the misconception that it will be a source of passive income, and most eventually exit those properties once realizing what they’ve gotten into.
The returns realized through owning real estate are a direct result of the time, energy and money that goes into it. While that business has been the source of many great fortunes over the years, it’s just simply not a business that makes sense for most people."
https://finance.yahoo.com/news/warren-buffett-doesnt-buy-real-210038043.html
kiora
11-02-2023, 07:17 PM
"He says buying at the right price is critical.
“I’ve always believed that there’s limited point in buying a dollar for a dollar,” he says. “That’s not going to move me very far ahead.”
That means he has to know how to make an asset worth $2, or buy it for 50 cents.
He tackles big purchases through leveraged buyouts, borrowing against steady cash flows."
https://www.stuff.co.nz/business/128825629/you-can-smell-where-the-money-is-graeme-hart-and-his-innate-sense-of-commerce
kiora
13-02-2023, 02:15 AM
"5 habits people with near-perfect credit scores have"
https://finance.yahoo.com/news/5-habits-people-with-near-perfect-credit-scores-have-210726854.html
kiora
28-02-2023, 08:39 AM
"Let your winners run: “In August 1994 … Berkshire completed its seven-year purchase of 400 million shares of Coca-Cola we now own. The total cost was $1.3 billion – then a very meaningful sum at Berkshire. The cash dividend we received from Coke in 1994 was $75 million. By 2022, the dividend had increased to $704 million. Growth occurred every year, just as certain as birthdays."
https://www.livewiremarkets.com/wires/8-key-quotes-from-warren-buffet-s-famous-annual-letter
iceman
28-02-2023, 01:04 PM
"Let your winners run: “In August 1994 … Berkshire completed its seven-year purchase of 400 million shares of Coca-Cola we now own. The total cost was $1.3 billion – then a very meaningful sum at Berkshire. The cash dividend we received from Coke in 1994 was $75 million. By 2022, the dividend had increased to $704 million. Growth occurred every year, just as certain as birthdays."
https://www.livewiremarkets.com/wires/8-key-quotes-from-warren-buffet-s-famous-annual-letter
A great example of letting your winners run. A good example of a winner on our NZX is MFT, which is never regarded as a dividend stock. But the other day I worked out how much I have been paid in dividends on the first lot of MFT shares I bought in 2006 at $ 4.25 and have held ever since. The dividends paid in these 16 years add up to $ 5.9561 per share and 2022 alone saw dividends of around 18% on the original purchase price. Given the huge capital gains as well, the compounding nature of stocks like this is just incredible and something I believe many newbies underestimate.
Bjauck
28-02-2023, 07:30 PM
A great example of letting your winners run. A good example of a winner on our NZX is MFT, which is never regarded as a dividend stock. But the other day I worked out how much I have been paid in dividends on the first lot of MFT shares I bought in 2006 at $ 4.25 and have held ever since. The dividends paid in these 16 years add up to $ 5.9561 per share and 2022 alone saw dividends of around 18% on the original purchase price. Given the huge capital gains as well, the compounding nature of stocks like this is just incredible and something I believe many newbies underestimate.
MFT’s thread has 128 pages of posts compared to OCA’s 1488 pages (as at time of writing.) I sometimes wonder whether the success and performance of company is inversely proportionate to the number of posts on Sharetrader ;) Boring is good.
stoploss
28-02-2023, 08:40 PM
MFT’s thread has 128 pages of posts compared to OCA’s 1488 pages (as at time of writing.) I sometimes wonder whether the success and performance of company is inversely proportionate to the number of posts on Sharetrader ;) Boring is good.
Yes I think it is.
"Let your winners run: “In August 1994 … Berkshire completed its seven-year purchase of 400 million shares of Coca-Cola we now own. The total cost was $1.3 billion – then a very meaningful sum at Berkshire. The cash dividend we received from Coke in 1994 was $75 million. By 2022, the dividend had increased to $704 million. Growth occurred every year, just as certain as birthdays."
https://www.livewiremarkets.com/wires/8-key-quotes-from-warren-buffet-s-famous-annual-letter
The benefits that Berkshire received by owning dividend paying stock can not be compared to how NZ investment funds operate. The key difference is due to taxation. Buffet is firm to keep all the dividends within Berkshire because when it's paid out to shareholders, the shareholders *usually* end up with a tax bill to pay. In America, long term capital gains is significantly lower than tax paid on dividends received. In NZ, long term capital gains tax is 100% tax free yet, we have an emphasis for receiving dividends (which is not at all 100% fully imputed tax credited). This simple logic is often never discussed by NZ financial advisers to their clients.
Nor where they will explain that the individual who invests directly in overseas shares like Coca Cola can be exempt of tax (under the deminus $50K threshold) while the first dollar paid into a Kiwi Saver fund (that buys the same KO stock) ; would be subjected to FIF.
Berkshire Hathaway does not cream a 1%+ admin/management fee, every year, on the assets they manage. Buffet for many decades earns a measling $100,000 income from Berkshire and when questioned why so low, his response was "I've never needed anymore than that to spend each year...". Anyways there are a lot of differences on how Berkshire Hathaway operates vs your Kiwi Saver fund.
Snoopy
03-03-2023, 07:53 PM
The benefits that Berkshire received by owning dividend paying stock can not be compared to how NZ investment funds operate. The key difference is due to taxation. Buffet is firm to keep all the dividends within Berkshire because when it's paid out to shareholders, the shareholders *usually* end up with a tax bill to pay. In America, long term capital gains is significantly lower than tax paid on dividends received. In NZ, long term capital gains tax is 100% tax free yet, we have an emphasis for receiving dividends (which is not at all 100% fully imputed tax credited). This simple logic is often never discussed by NZ financial advisers to their clients.
I take issue with one detail of the above explanation. The purpose of the imputation credit system is to ensure that New Zealand income tax is only paid once on company earnings, and not twice when dividends from those earnings end up in shareholders hands. If dividends are not fully tax credited, that is because the said company has not paid NZ tax on a portion, or all, of those earnings. Examples of this are when an NZ company pays some of its tax overseas to an overseas tax authority. Or when a company pays dividends from profits as a result of capital gain (like property revaluations) which are not taxable in NZ at the company level. Thus a dividend that has not been fully imputed means that full NZ income tax has not been paid on those earnings. Any NZ company that has paid full NZ tax on their earnings will pay a fully imputed dividend.
Nor where they will explain that the individual who invests directly in overseas shares like Coca Cola can be exempt of tax (under the deminus $50K threshold) while the first dollar paid into a Kiwi Saver fund (that buys the same KO stock) ; would be subjected to FIF.
Just because a taxpayer investing overseas is exempt from the FIF regime on their individually owned shares, does not mean they are exempt from tax. They still must pay tax on any dividends received.
SNOOPY
Bjauck
04-03-2023, 06:03 PM
I take issue with one detail of the above explanation. The purpose of the imputation credit system is to ensure that New Zealand income tax is only paid once on company earnings, and not twice when dividends from those earnings end up in shareholders hands. If dividends are not fully tax credited, that is because the said company has not paid NZ tax on a portion, or all, of those earnings. Examples of this are when an NZ company pays some of its tax overseas to an overseas tax authority. Or when a company pays dividends from profits as a result of capital gain (like property revaluations) which are not taxable in NZ at the company level. Thus a dividend that has not been fully imputed means that full NZ income tax has not been paid on those earnings. Any NZ company that has paid full NZ tax on their earnings will pay a fully imputed dividend.
Just because a taxpayer investing overseas is exempt from the FIF regime on their individually owned shares, does not mean they are exempt from tax. They still must pay tax on any dividends received.
SNOOPY
In addition, The company tax rate is 28%, so even fully imputed dividends paid to NZ Resident individuals have further RWT levied to take the imputation plus RWT to the 33% individual rate. Of course an individual must pay additional tax if their marginal income tax rate is 39%..
I guess, as I understand it, with individuals in KiwiSaver, under fif rules their KiwiSaver fund’s foreign fif investments are deemed to earn 5% taxable income in a year even if no dividend is paid, and the foreign investment valuation drops. However the top tax rate for an individual with a KiwiSaver account (a PIE) is 28%.
DYOR this is not advice.
Regarding fully imputed - don't bet your shoe that most of the companies listed in the NZX are under a fully imputed tax regime. The booklet that covers the process requires lawyers and a team of accountants to understand. But regardless, when an individual embarks on a 'long term' retirement investment plan, the should NOT focus on collecting dividends because it's very clear the individual can no reinvest better for better returns. The primary goal for any dividend payment is for residual income where the plan is not for long term gains. But you've side stepped my issue i'm hitting at. Why not take the tax free capital gain by retaining the profits on the shareholder's equity section of the balance sheet (by selling a portion of shares when the shareholder wants an income) ? For myself there's no worse case to have random dividends paid when I see no interest in wanting that income; all that does is erodes long term compound gains. Nevertheless in NZ, regardless of the type of business (growth / mature ) stocks, dividends have been hammered down to investors in all sorts of ways without logic.
Just because a taxpayer investing overseas is exempt from the FIF regime on their individually owned shares, does not mean they are exempt from tax. They still must pay tax on any dividends received.
SNOOPY
Again stop with the side stepping argument. The whole reason FIF was introduce in NZ was to address that in America, most companies focus on improving "shareholder wealth" and to do that, that means none other than higher share prices for capital gains. This was spelled out plain and clear when Bill English (excuse me if that was the wrong person?) office had explained the introduction of FIF back in 2005 (or thereabouts). So let me clarify this whole FIF issue. Many of NZ Kiwi Saver funds buy nothing but the Vanguard S&P500 ETF (or mimic it's approximation) which you should know, these ETFs pay NO dividends whatsoever. So it's very clear the individual that buys VOO directly is at a clear tax advantage.
and if you have read my posts that has hammered this issue countless of times, the biggest killer to compound future gains is the robbing of high management fees. If you think 2 or 3% fees applied on the total portfolio every year is robbery, considered how FIF impacts it when the FDR is at 5%. There is no way in *ell a person under this Kiwi Saver scheme will have nearly the same amount of wealth as the same person living in N. America under their investment tax scheme.
Snoopy
05-03-2023, 10:30 AM
Regarding fully imputed - don't bet your shoe that most of the companies listed in the NZX are under a fully imputed tax regime. The booklet that covers the process requires lawyers and a team of accountants to understand.
You are over-complicating things. If a company operates in New Zealand and pays full corporate tax on their New Zealand profits then they are in a position to pay fully imputed dividends from those profits. It is that simple.
But regardless, when an individual embarks on a 'long term' retirement investment plan, the should NOT focus on collecting dividends because it's very clear the individual can not reinvest better for better returns.
No I respectfully disagree on this point. It might be true in the USA or in Canada, with the world's largest market, the USA on their doorstep. But there has been some terrible capital destruction by NZ listed companies, taking their NZ generated capital and NZ centric view on how to run a business to the world and coming a cropper. The problem is the NZ market is small, and most listed companies reach a stage where further expansion in NZ does not make sense. As a shareholder in a company like that, I would far rather they pay me their profits as a dividend rather than reinvest those profits in a new tangential business venture that management does not fully understand. This is very different to the USA where you can start small in one state, and then if successful, have 49 similarly regulated states which you can grow your proven business model into.
Why not take the tax free capital gain by retaining the profits on the shareholder's equity section of the balance sheet (by selling a portion of shares when the shareholder wants an income) ?
Because you are assuming that profits retained by management can be reinvested back into the business to gain incrementally higher earnings than would be the case if they paid that money out to you as a dividend. If that were always true I would agree with your strategy 100%. But for many NZ companies it is not true. In fact I would go so far as to say for most NZ listed companies it is not true.
Again stop with the side stepping argument. The whole reason FIF was introduce in NZ was to address that in America, most companies focus on improving "shareholder wealth" and to do that, that means none other than higher share prices for capital gains.
Many of NZ Kiwi Saver funds buy nothing but the Vanguard S&P500 ETF (or mimic it's approximation) which you should know, these ETFs pay NO dividends whatsoever. So it's very clear the individual that buys VOO directly is at a clear tax advantage.
Now I know that the typical US company pays a lower dividend rate than a typical NZ company. That is to do with the better growth prospects that USA companies have, and also the double taxation of any dividends that are paid into US shareholders hands.
But are you seriously claiming that of all of those companies in the Vanguard S&P500 fund, none of them are paying dividends to Vanguard? Of course they are, and here is another revelation for you. Of those dividends that Vanguard is receiving, Vanguard is paying tax on them! As an individual Vanguard S&P500 fund ETF holder, all this takes place under the 'Vanguard cloak' so you don't see it happening. Vanguard simply takes the net dividend money and reinvests in their own fund. Nevertheless as a Vanguard S&P500 fund ETF unit holder, you are paying tax on these 'hidden dividends to Vanguard' all the way through.
The fact that the Vanguard S&P500 fund is not paying a dividend directly to you as a unit holder, does not mean you are getting a tax free ride.
and if you have read my posts that has hammered this issue countless of times, the biggest killer to compound future gains is the robbing of high management fees. If you think 2 or 3% fees applied on the total portfolio every year is robbery, considered how FIF impacts it when the FDR is at 5%.
The 'fair dividend rate' is your taxable income. So if your incremental tax rate is 33%, the tax on your FDR balance is: 0.33 x 5% = 1.65%. Not 5% as some think.
SNOOPY
Bjauck
05-03-2023, 01:48 PM
…
The 'fair dividend rate' is your taxable income. So if your incremental tax rate is 33%, the tax on your FDR balance is: 0.33 x 5% = 1.65%. Not 5% as some think.
SNOOPY
It is sad reflection on the investment environment that some think that NZ would be so discriminatory to tax unrealised capital gains on overseas equities and other overseas investments so punishingly as to impute them as producing 15% annual income… It is bad enough if your KiwiSaver has to account for 5% FDR income in years when asset valuations are falling and minimal actual income is received.
It is sad reflection on the investment environment that some think that NZ would be so discriminatory to tax unrealised capital gains on overseas equities and other overseas investments so punishingly as to impute them as producing 15% annual income… It is bad enough if your KiwiSaver has to account for 5% FDR income in years when asset valuations are falling and minimal actual income is received.
I'm glad you've understood the basic premise of my point, while Snoopy has been great at addressing everything else but the real issue.
Snoopy: But are you seriously claiming that of all of those companies in the Vanguard S&P500 fund, none of them are paying dividends to Vanguard? Of course they are, and here is another revelation for you. Of those dividends that Vanguard is receiving, Vanguard is paying tax on them!
The short answer is yes. I am claiming over in N. America, the taxing of investments by individuals ultimately comes at time of cash withdrawal of their fund. So if the person invests in a 'tax deferred' 401k plan, ALL of the dividends that that ETF receives every year is tax free for as long as it stays withing their 401k plan. It's only at retirement (or pay a penalty for early withdrawal) that when the funds are withdrawn (by sale of their share holding), that tax comes into play. The 'typical' ETF funds themselves, if they are passively managed, have little to do with tracking the amount of tax they have to pay for each individual client they have as their goal is simplified to achieving long term returns for their clients. Again, the taxation aspect ultimately lies at the client end so when an ETF has dividends each year - some clients end up paying taxes on those dividends if the type of investment account is a non-registered account. However the point in discussion is comparing to NZ's Kiwi Saver so in places like the US (401K/tax-free IRA) or Canada (RRSP/TFSA/RDSP/RESP), it's very clear clients that invest for retirement (or for a specific purpose / category) have a much higher asset value than the Kiwi Saver that buys the same ETF funds.
Again, the whole intent why FIF was introduced in NZ was to address the issue that over in N. America, returns from share investments come more in the form of capital gains while in NZ, it comes more in the form of dividends. By imposing FIF, they chose some 'arbitrate' FDR rate of 5% ; I question why 5% was chosen to be the "Fair Dividend" rate? Why not 2% or 10% and furthermore why no re-capture limit for years where portfolios go negative? You can be sure that the 2022 year most of the funds were negative so no FDR but, what about this 2023 year if it does 20% return? Will all those clients have pay FIF again? The lessen this burden, no FIF should paid unless it exceeds the net asset value of the prior positive year. So if the fund posted a 20% loss in 2022 - say from $10B down to $8B, no FIF tax to be paid until it exceeds $10B in the following years. But as far as my numerous look up in IRD's FIF handbook, there is no such allowance.
@Bjauck: The NZ way of taxation is so screwed up that it's no wonder all the people around me here have gone rich by investing in real estate. How can they lose by holding rental properties after 10 years where the capital gains are 100% tax free. To add more insult, why does FIF only apply to foreign share investment holdings but not on foreign real estate properties?
NZ has so much to do to level the playing field. When I see long standing investment schemes in Canada; the RESP, RDSP, & TFSA, all with the main focus at giving the needy or financially disadvantaged a better hand than the ultra rich, does not exist in NZ. This year my friend in Canada has entirely funded his daughters uni education from his RESP (Registered Education Savings Plan) that was brought out over 20 years ago in Canada. The gov't matches contributions with the family from as early as when the child was born and ALL OF THOSE YEARS up to when the child gets to post secondary education, the withdrawals from RESP are 100% tax free (and the compound gains year after year are untaxed).
Then there's the RDSP for those who have disabilities. Like the RESP, they get life long tax free compounding of their investments. The disbursements at any time is tax free (either to fund for accommodation, education, or anything that can lead the disabled person into society).
When I look at NZ, it seems all the cards are stacked in favour to the rich that own all the assets. Those on the disability benefit have no plan to improve their outcome (at least not financially). Gov't hand outs are not the solution of bridging inequality across society.
I should clarify one important difference between NZ's Kiwi Saver vs the RRSP or 401K we see in N. America. The latter focuses on taxation only upon withdrawal. The former focuses on taxing on gains every year via FIF (again, providing we're investing in the same asset class say the Vanguard VOO). IRD wants the tax $ now and throughout the plan, but at the end, the person can withdraw ALL of the invested funds tax free. But how is this advantageous? I can't see how a pensioner at age 65 would want to make such a withdrawal from their long term Kiwi Saver plan as it's of no use (unless it's of a small value). I'm not sure what the premise would be for Kiwi Saver but with the 401K and RRSPs, you "ONLY PAY TAXES" based on the amount you WANT to withdraw. So the retired person can factor what tax bracket they are in that year... if they choose fit to be in the top tax bracket, they can withdraw a lot for a new motorhome or luxury sport's car purchase. If they already have income from other sources, they may NOT choose to make any withdrawal from their 401K/RRSP plan in that year. It's all about putting the ball in the investor's court so they can tailor what tax amount of tax they pay. Of course ultimately when the person dies, then 'deemed disposition' applies so all the taxes will be paid by the estate.
Snoopy
06-03-2023, 10:06 PM
I should clarify one important difference between NZ's Kiwi Saver vs the RRSP or 401K we see in N. America. The latter focuses on taxation only upon withdrawal. The former focuses on taxing on gains every year via FIF (again, providing we're investing in the same asset class say the Vanguard VOO).
Yes I do understand your point that NZ Kiwisaver is 'pay tax as you go' but the equivalent North American Plan is pay tax 'when you choose to receive whatever portion you want of your pension scheme accumulated capital back', after retirement age. But I still believe your assertion that the North American investor doesn't pay tax through the 'accumulation phase' of their retirement fund is wrong.
The structural issue that I am trying to point out is that:
1/ US corporations pay income tax on their profits.
2/ But those same profits are taxed again when a portion of those profits are paid out to investors as dividends,
By not claiming any pension money during the accumulation phase, North American retirement fund holders can postpone the tax 2/. But they cannot avoid paying tax 1/, because that is paid to the IRS before the retirement fund gets it. So it isn't true to say that North American retirees pay 'no tax' until they cash out of their fund.
SNOOPY
Bjauck
07-03-2023, 10:10 AM
…
When I look at NZ, it seems all the cards are stacked in favour to the rich that own all the assets. Those on the disability benefit have no plan to improve their outcome (at least not financially). Gov't hand outs are not the solution of bridging inequality across society.
Well I guess Labour’s Cullen could get away with the fulsome taxation of KiwiSaver and the extension of FIF taxation which ensured the fulsome taxation of FIFs in KiwiSaver PIEs, because there are few votes to be lost over it. Unlike the likely electoral damage which would be wrought from introducing a similar scheme with investor real estate, in which more kiwis are more heavily invested.
There also seems to be little appetite with Labour or National to introduce major change to our highly regressive tax system to break any poverty trap.
Lego_Man
07-03-2023, 02:39 PM
This discussion is an important reminder of how useful PIE funds are with their 28% top rate.
For top tax rate payers (39c) the annual tax benefit is 0.5% per annum on offshore FDR assets versus not holding your stocks in a PIE. With cash and bond returns in NZ now north of 5%, this is even more pronounced as every dollar of interest income is taxed.
The holy grail is a low fee PIE structure.
This discussion is an important reminder of how useful PIE funds are with their 28% top rate.
For top tax rate payers (39c) the annual tax benefit is 0.5% per annum on offshore FDR assets versus not holding your stocks in a PIE. With cash and bond returns in NZ now north of 5%, this is even more pronounced as every dollar of interest income is taxed.
The holy grail is a low fee PIE structure.
True for the 'HIGH' income earner. For those under the 28% tax bracket = no dessert for them. And just as i've tooted before, the rich in NZ get all the benefits.
The US 401k plan has the option for paying tax on the return as you go and then getting it tax free at the end.
The US 401k plan has the option for paying tax on the return as you go and then getting it tax free at the end.
ROTH-401k plans are not very common for the simple fact, there's very very little benefit to the person saving for retirement. I can only think of if the person is young, and 'anticipates they will be paying income taxes at a higher tax rate AT retirement, then that would make sense to do ROTH-401k. But no one with any certainty can predict what will happen in 30 or 40 years time. In a similar way, another reason for ROTH-401k is if you live in a state where income taxes are low (ie states that have no state income tax), AND you INTEND to move to another state that has HIGHER income taxes during retirement, then ROTH-401k would make sense.
There are other issues such as if future income taxes will continue to rise. One that chooses a ROTH-401k vs the Traditional must ask these bets, "will income tax rates go up in the future?" Unfortunately no one really knows and no financial advisor would accept clients to go ROTH-401K on the basis of a "maybe" factor. Individual circumstances always change and when you're talking 30 or 40 years out into the future, a lot can happen.
One thing certain is during retirement, seniors typically have lower incomes and therefore benefit from their retirement fund withdrawals. It makes absolutely no sense for a top income earner in their younger years, to be paying taxes up front ; when in the long term future, they will not be in that same tax bracket. But that's what we have here in NZ with Kiwi Saver.
kiora
08-06-2023, 02:11 AM
"I look for three things: team, TAM [total addressable market] and traction"
https://finance.yahoo.com/news/crypto-obsession-early-crocs-investment-100035459.html
kiora
12-06-2023, 09:04 PM
For those in need of some advice (if the Greens don't get it first).
From Bruce Sheppard
"Quick check list of things to help you survive getting rich
Define what success looks like so you can pat yourself on the back.
Avoid the envy of others. Celebrate your own success.
For at least 12 months post a significant change in your wealth, do nothing. Pat yourself on the back feel good about it, make no decisions on anything big.
Work out who to trust, and not. Make sure you find a trusted advisor if you do not already have one. Someone who you will listen to when they tell you, you are being a dick head.
Avoid arrogance and being flashy.
Remember to keep walking, i.e. don’t get so scared that you do nothing.
Start spending time with your family and the preparation of them for what is coming down the pipe at them.
But above all else, remain real. A purpose of wealth is choice and freedom. Learn to not give a f*ck. Compulsory reading: The subtle art of not giving a f*ck, click here for the book. (This link no longer appears to work so here's author Mark Manson's website, Ed).
https://www.interest.co.nz/opinion/102495/part-two-series-articles-wealth-bruce-sheppard-looks-how-retain-and-grow-money-once
kiora
17-06-2023, 10:16 PM
"The Heretics of Finance."
https://www.amazon.com/gp/customer-reviews/R1SN42WC4Q72YI/ref=cm_cr_dp_d_rvw_ttl?ie=UTF8&ASIN=1576603164
kiora
18-06-2023, 01:01 PM
"25 JESSE LIVERMORE TRADING RULES : ULTIMATE GUIDE TO THE BOY PLUNGER"
https://stocksoftresearch.com/jesse-livermore-trading-rules-boy-plunger/
kiora
18-06-2023, 01:07 PM
"As Charlie Munger said, over a long time, it’s hard for a stock to earn a much different return than the business that underlies it earns.
But that’s in the long term. In the short term, beta can significantly affect our returns."
https://twitter.com/10kdiver/status/1378421887890456577
Valuegrowth
18-06-2023, 03:36 PM
It’s really interesting to read some of his rules and how he cornered the cotton market. BTW I have read his book “Reminiscences of a Stock Operator.”
“1. NOTHING NEW EVER OCCURS IN THE BUSINESS OF SPECULATING OR INVESTING IN SECURITIES AND COMMODITIES.
Another lesson I learned early is that there is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again. I’ve never forgotten that.
What Jesse means is that the same market moves and patterns occur over and over again. Markets are run by people, which means the same patterns will always occur. Throughout history we have seen the same speculative bubbles and market crashes (https://stocksoftresearch.com/bubbles-crashes/) time and time again. From the South Sea Bubble, to Tulip Mania, to the depression, to the 2008 credit crisis.
These crashes and bubbles are just an inevitable feature of the markets.
humans in the first place. And often, when a major market event takes place, the computer programs are programmed to turn themselves off.
Jesse Livermore lived through the Great Depression and saw some of the most difficult trading conditions ever seen. Still, he was able to create massive fortunes trading volatility and trends.
Even if no day is ever the same, Jesse Livermore knew that markets and market patterns repeat themselves and investors act out the same behaviours year in year out. By recognising this, you can be start to believe in your ability to learn and adapt to the swings of the market.
4. YOU DON’T HAVE TO TRADE
After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight!”
“Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after a stock operator has firmly grasped this that he can make big money.
8. DON’T TRADE TOO LARGE OR RISK TOO MUCH
If you can’t sleep at night because of your stock market position, then you have gone too far. If this is the case, then sell your position down to the sleeping level.
25. AVOID GET-RICH-QUICK SCHEMES.
People who look for easy money invariable pay for the privilege of proving conclusively that it cannot be found on this earth.
The sucker has always tried to get something for nothing, and the appeal in all booms is always frankly to the gambling instinct aroused by cupidity and spurred by a pervasive prosperity."
https://www.warriortrading.com/jesse-livermore/
On two occasions, Livermore cornered the Chicago cotton market.
"The US government, specifically President Woodrow Wilson, took notice of this and called Livermore to the White House to discuss the matter.
Reportedly, when asked why he cornered the market, he responded with “to see if I could, Mr. President.
Jesse Livermore reportedly sold the position at roughly breakeven as a favor to the United States because he didn’t want to cause harm to the economy.”
"25 JESSE LIVERMORE TRADING RULES : ULTIMATE GUIDE TO THE BOY PLUNGER"
https://stocksoftresearch.com/jesse-livermore-trading-rules-boy-plunger/
Point #4 - Page 57
https://i.imgur.com/6qFASSx.jpg
I find the most important part is the next paragraph that specifically says the frequent Wall Street traders 'beat themselves'. They lose money, which should be a fundamental question people need to ask when they put their $ to a fund manager that practices the same active management of their portfolios.
I have nothing against doing speculation trades if the individual is taking on the risk alone. But to use 'other people's money' well, that's a horse of a different colour. The so called experts claim they know how to beat the market, but for the mass majority, the produce less returns for their investors.
kiora
24-06-2023, 09:31 AM
"Billionaire investor Mark Cuban says he sees one trait in all successful people—and it’s one of the only characteristics you can control"
https://finance.yahoo.com/news/mark-cuban-says-good-not-091928571.html
"Billionaire investor Mark Cuban says he sees one trait in all successful people—and it’s one of the only characteristics you can control"
https://finance.yahoo.com/news/mark-cuban-says-good-not-091928571.html
Not sure how that relates to the individual investing their $. It seems like good worth ethics should lead to good results. Instead, in the investment industry we are seeing active managing of investments (as it's ethical to invest 'other' peoples money to produce less returns is 100% acceptable).
Valuegrowth
30-06-2023, 10:12 PM
Seth Klarman
“I think markets will never be efficient because of human nature.”
“Buying’s easier, selling’s hard – [it’s] hard to know when to get out.”
“The single greatest edge an investor can have is a long-term orientation.”
“Value investing is at its core the marriage of a contrarian streak and a calculator.”
Li Lu
“Being a value investor means you look at the downside before looking at the upside.”
“To be a better investor, you have to stand on your own.You just can’t copy other people’s insights.”
kiora
03-07-2023, 04:10 AM
"Buffett has "a unique ability to say no to all manner of investment promoters, bubble profiteers, and well-meaning but deluded brokers,""
""The difference between successful people and really successful people is that really successful people say no to almost everything.""
https://finance.yahoo.com/news/steve-jobs-laser-sharp-focus-184500293.html
kiora
07-07-2023, 12:09 PM
Some pertinent lessons.
There is no single recipe.
"“There are no extra points for degree of difficulty.”
There’s no point in having a strategy that relies on repeated brilliance or luck to be successful. That’s an unreliable way to make progress. It’s far better to play the investing game on ‘easy mode’.
https://www.livewiremarkets.com/wires/meet-dave-the-warehouse-worker-who-retired-at-28-by-keeping-it-simple?utm_medium=email&utm_campaign=Trending%20on%20Livewire%20-%20Friday%20July%207%202023&utm_content=Trending%20on%20Livewire%20-%20Friday%20July%207%202023+CID_875770f0a0b922ca9c 5a0798ae233456&utm_source=campaign%20monitor&utm_term=MEET%20DAVE
Some pertinent lessons.
There is no single recipe.
"“There are no extra points for degree of difficulty.”
There’s no point in having a strategy that relies on repeated brilliance or luck to be successful. That’s an unreliable way to make progress. It’s far better to play the investing game on ‘easy mode’.
https://www.livewiremarkets.com/wires/meet-dave-the-warehouse-worker-who-retired-at-28-by-keeping-it-simple?utm_medium=email&utm_campaign=Trending%20on%20Livewire%20-%20Friday%20July%207%202023&utm_content=Trending%20on%20Livewire%20-%20Friday%20July%207%202023+CID_875770f0a0b922ca9c 5a0798ae233456&utm_source=campaign%20monitor&utm_term=MEET%20DAVE
No mention of what sums were involved or how much he amassed before retirement.
"Buffett has "a unique ability to say no to all manner of investment promoters, bubble profiteers, and well-meaning but deluded brokers,""
""The difference between successful people and really successful people is that really successful people say no to almost everything.""
https://finance.yahoo.com/news/steve-jobs-laser-sharp-focus-184500293.html
Buffett has a unique ability to get board seats and preferred stock. Good luck with that, Buffett fans.
Some pertinent lessons.
There is no single recipe.
"“There are no extra points for degree of difficulty.”
There’s no point in having a strategy that relies on repeated brilliance or luck to be successful. That’s an unreliable way to make progress. It’s far better to play the investing game on ‘easy mode’.
https://www.livewiremarkets.com/wires/meet-dave-the-warehouse-worker-who-retired-at-28-by-keeping-it-simple?utm_medium=email&utm_campaign=Trending%20on%20Livewire%20-%20Friday%20July%207%202023&utm_content=Trending%20on%20Livewire%20-%20Friday%20July%207%202023+CID_875770f0a0b922ca9c 5a0798ae233456&utm_source=campaign%20monitor&utm_term=MEET%20DAVE
Thanks for the link. Interesting. Like the look of the Australian Shares ETF.
Food for thought.
kiora
20-07-2023, 01:49 PM
Not my style BUT
Definitely food for thought. Some here could learn from this one?
From someone who is a "FIRE BRIGADE" member
"In addition to the low information diet and an indexing approach to investing, I automate my investments in order to stop inadvertently sabotaging myself."
https://www.livewiremarkets.com/wires/meet-pete-he-pulled-the-ripcord-and-retired-at-30-here-s-how-he-did-it?utm_medium=email&utm_campaign=Trending%20On%20Livewire%20%20Thursda y%2020%20July%202023&utm_content=Trending%20On%20Livewire%20%20Thursday %2020%20July%202023+CID_bbef658ad54b136313074057ba 593b37&utm_source=campaign%20monitor&utm_term=ACCESS%20THE%20INSIGHTS
kiora
29-07-2023, 09:55 AM
"Apart from that, I feel that if you truly want to understand a stock, it's important to get a grip on the management. It is often difficult to engage with the management of companies based in other jurisdictions. I believe that knowing what makes the management tick is of more advantage to an investor than delving into technical or fundamental analysis."
https://www.livewiremarkets.com/wires/meet-patrick-this-commodities-contrarian-digs-in-the-market-s-bottom-drawer?utm_medium=email&utm_campaign=Trending%20on%20Livewire%20-%20Saturday%2029%20July%202023&utm_content=Trending%20on%20Livewire%20-%20Saturday%2029%20July%202023+CID_88c144d74ff7105 d48ee1a5a46388d6c&utm_source=campaign%20monitor&utm_term=MEET%20THE%20INVESTOR
What is the difference between investing in a fund such as the S&P fund, and investing in a random sample of 1/4 of the S&P fund individual stocks directly?
Investing in a large enough random sample of a fund’s, an indexes or a stock exchange’s underlying holdings should, on average (see Bayesian probability), reflect the same returns as holding the whole fund, index or exchange.
People may bother to do this, if motivated enough:
to avoid paying fees to a fund manager,
and wanting personal ownership of share certificates, the feeling that you, yourself have direct control over your shares, rather than some abstract fund manager
it is easy enough to do this from an administrative point of view on the New Zealand stock exchange. (Although I take the point made a number of times on this site that the return on the New Zealand stock exchange held in its entirety over the years (or NZX 50 only(?)) has been a bit rubbish.)
What is the difference between investing in a fund such as the S&P fund, and investing in a random sample of 1/4 of the S&P fund individual stocks directly?
Investing in a large enough random sample of a fund’s, an indexes or a stock exchange’s underlying holdings should, on average (see Bayesian probability), reflect the same returns as holding the whole fund, index or exchange.
People may bother to do this, if motivated enough:
to avoid paying fees to a fund manager,
and wanting personal ownership of share certificates, the feeling that you, yourself have direct control over your shares, rather than some abstract fund manager
it is easy enough to do this from an administrative point of view on the New Zealand stock exchange. (Although I take the point made a number of times on this site that the return on the New Zealand stock exchange held in its entirety over the years (or NZX 50 only(?)) has been a bit rubbish.)
The difference would be remarkable as the individual can never will have to front up commissions to make the purchase of 125 companies. Where as if you buy say the Vanguard S&P500 ETF, ticker VOO - then there's only 1 set of charge when you make the purchase.
How good will your stock picks be? Time and time again has shown, the vast majority of fund managers, hedge funds, and pension funds DO NOT beat the market index returns. They spend wasteful amounts of time combing through data, to individually pick stocks out of the S&P500 and after you factor their commissions and management fees, the net result is they're always going to return you less to the investor than the investor buying the VOO directly. This is a proven fact. So what makes the individual believe they would do a better job? I'm afraid they won't as their odds are stacked against them even more. Also, owning stocks in street form certificate is a bad idea from a liquidity point of view.
There was an article by a NZ financial advisor that claimed everyone in NZ should be under Kiwi Saver and that it can 1 day, replace our Superannuation. What he neglects is that if the NZ gov't maintained the NZ superannuation so it kept investing in the S&P500, it would provide a net return far more than what these Kiwi Saver funds had done for the individuals. That's because the NZ Super, can invest directly without the high administrative costs of Kiwi Saver funds (where every individual has to be tracked and have paperwork involved and FIF / taxation etc).
Lost in the many pages of past, i'll repeat again. Consider Vanguard founder Jack Bogle had said that if the market returns 7% pa for the next 50 years. If you assume 2% is lost through administration / mgt fees and taxation like IRD's nasty FIF, that would result in a 5% return on the portfolio. The difference between a portfolio earning 5% vs 7% is 2/3rds of the gain in the 5% is LOST. yes that's right, the 5% portfolio ONLY sees 2/3rds of the gain of the 7% portfolio, all lost because of the magic of compound interest (or how he says, compound expenditures). This is a mathematical fact and can not be refuted, but yet in industry, we have financial advisors that never mention a word of this. Why?
Bobdn
03-08-2023, 11:15 PM
Good points. I wish I had understood the advantage of low cost ETF/index funds much earlier in my investing life. Actually, I did understand but chose to ignore and it cost me. All's well that ends well and I now own no individual shares.
It's great to see competitive fees out there too with some NZ providers. They're not US Vanguard low but low compared to where we were just 5 years ago and low enough for me. Simplicity has global equity funds of 0.15 per cent fees and a NZ bond fund and share fund with just 0.1 per cent fees. Kernel Wealth is 0.25 per cent - lots of good options and Superlife's default KiwiSaver scheme is just 0.20. I use all three.
I think we can all remember those 1990s investment fund options: close to 2 per cent fees plus a charge every time you deposited money. Unbelievable.
kiora
14-10-2023, 02:34 PM
" (My humble advice is to learn to sell occasionally. There are always weeds. Your results can also be improved, not by stock picking, but by stock culling)."
https://www.livewiremarkets.com/wires/the-8-traits-of-a-retiree-investor?utm_medium=email&utm_campaign=Trending%20on%20Livewire%20-%20Saturday%20October%2014%202023&utm_content=Trending%20on%20Livewire%20-%20Saturday%20October%2014%202023+CID_95540c898648 6782c9188e878c2e70ff&utm_source=campaign%20monitor&utm_term=FIND%20THEM%20HERE
kiora
18-10-2023, 03:54 AM
"Combs added that for many, contentment is the biggest obstruction to achieving greatness.
“People usually rise to their level of complacency,"
"Buffett spoke about the importance of identifying and pursuing a passion—advising those starting out to seek out the job they would do “if they had no need for money.”"
https://finance.yahoo.com/news/warren-buffett-deputy-says-million-102610870.html
kiora
18-10-2023, 05:11 AM
"Insync uncovers flaws in passive versus active debate"
https://www.goodreturns.co.nz/article/976522362/insync-uncovers-flaws-in-passive-versus-active-debate.html?utm_source=GR&utm_medium=email&utm_campaign=GoodReturns+Market+Report+for+17+Oct+ 2023
Some NZ investors portfolios may benefit by investing in Australasian or other offshore active funds
kiora
31-10-2023, 04:41 AM
How are the traders feeling now?
"The fact is that human beings, including me, are lousy stock pickers by nature. We sell when we should be buying and buy when we should be selling"
"The answer is it does work out through long-term compounding. But you have to wait until this late stage threshold, which starts at 23, 24 years, and then suddenly you are like, whoa, this stuff actually works. It's math."
https://finance.yahoo.com/news/the-wolf-of-wall-street-why-the-sp-500-index-is-still-the-ticket-to-riches-173042506.html
kiora
06-11-2023, 10:39 PM
Investing in a Company?
What type of Board does it have?
"Evolve corporate governance to support development of dynamic capabilities
Situation: In New Zealand firms, the board’s ability and capacity to collaborate with management on
capability development, investment in risky innovation and long-run strategy is under constant pressure.
Time spent on compliance and regulation is ever increasing, and consequences of “sins of commission”
are severe, unlike those of omission. Compliance-oriented professions such as legal and accounting tend
to be overrepresented instead of those with deep technology, science, engineering and innovation
expertise or with international experience and outlooks. The voices of the young, mavericks and creatives
are tending to be largely unheard in most board rooms. Most board procedures and processes have not
evolved greatly with the times. This situation makes it difficult for the board to be active stewards, with
management, of long-run strategy and capability development"
https://static1.squarespace.com/static/5d5f0079ed0caf00014c2fe2/t/5f63dae5dbb88f3442a6785d/1600379622741/BRGI_NZ+frontier+firms+a+capabilities+perspective. pdf
kiora
11-11-2023, 10:24 AM
Know the numbers & patience
"How to invest like Warren Buffett"
https://www.livewiremarkets.com/wires/how-to-invest-like-warren-buffett?utm_medium=email&utm_campaign=Trending%20on%20Livewire%20-%20Saturday%2011%20November%202023&utm_content=Trending%20on%20Livewire%20-%20Saturday%2011%20November%202023+CID_e6913ce90a8 21eac6c21ae7b56df834b&utm_source=campaign%20monitor&utm_term=FIND%20OUT
kiora
16-11-2023, 04:30 AM
Whether one likes him or not he still has something to teach
"“I tell senior executives, ‘You should have the least stress' he said. "There's this false idea that CEOs are under the most stress. Well, I look at that and I'm like why? You're in charge. Why don't you delegate the stress? It's your choice.”"
"“It’s your choices that construct your life, not your gifts,” he said, encouraging young people to embrace challenges and adventure over comfort and ease."
https://finance.yahoo.com/news/jeff-bezos-believes-ceos-less-172255112.html
kiora
18-11-2023, 09:12 AM
I haven't listened to it yet but
"Qiao Ma: Why culture should be key to your investment decision-making
Culture is hard to assess but, as the saying goes, you'll know it when you see it. The problem is, most people don't look."
https://www.livewiremarkets.com/wires/qiao-ma-why-culture-should-be-key-to-your-investment-decision-making?utm_medium=email&utm_campaign=Trending%20on%20Livewire%20-%20Saturday%2018%20November%202023&utm_content=Trending%20on%20Livewire%20-%20Saturday%2018%20November%202023+CID_cbbab1416ea 28addc0848b71dd0ae8a5&utm_source=campaign%20monitor&utm_term=LISTEN%20TO%20THE%20PODCAST
kiora
30-11-2023, 05:58 AM
RIP
""One of the inane things [that gets] taught in modern university education is that a vast diversification is absolutely mandatory in investing in common stocks. That is an insane idea. It's not that easy to have a vast plethora of good opportunities that are easily identified. And if you've only got three, I'd rather it be my best ideas instead of my worst. And now, some people can't tell their best ideas from their worst, and in the act of deciding an investment already is good, they get to think it's better than it is. I think we make fewer mistakes like that than other people. And that is a blessing to us." — 2023 Berkshire Hathaway Annual Meeting"
https://finance.yahoo.com/news/memorable-quotes-from-berkshire-hathaways-charlie-munger-225308303.html
kiora
02-12-2023, 06:24 AM
Are you an investor or a gambler?
"'I lost half-a-million trading on the internet – it's no different to gambling'"
"A spokesperson for the Financial Markets Authority said it did not have any local data but in the UK about 80% of people lost money investing in CFDs.
“Our view is that derivative trading is very high risk, even for experienced investors.”"
He said he was also experimenting with a demo account that got to $3.5 million.
“I was hooked. But in a short time the market turned and I lost all that money and another $200,000. Over time my total losses are $400,000 to $500,000.”"
https://www.stuff.co.nz/business/money/301018463/i-lost-halfamillion-trading-on-the-internet--its-no-different-to-gambling
"
kiora
04-12-2023, 11:20 AM
Investment Risk
https://www.vltavafund.com/dopisy-akcionarum/vynosariziko
"If I had to name one occasion in which people most often lose money in investing, it is when they get into things they do not understand"
"The second pillar of our risk management is to avoid the risk of permanent loss of capital. Or, better said, to minimise its probability"
"Permanent loss of capital is not the same as volatility. Share prices normally fluctuate. A difference of 40% between the highest and lowest price of a given share during the year is not unusual. For the long-term investor, however, volatility is not a source of risk. The source of risk is the permanent loss of capital. How do we try to avoid it? We know from experience that the most common causes of permanent loss of capital tend to be poor quality businesses, high levels of debt, and poor management actions."
"The last essential element of risk management is the emphasis on good price.'
"The individual steps of our risk management approach are not measurable, some of them are even difficult to estimate, but all of them together are designed to eliminate the important risk elements present and thus over time tilt the probability of a good return in our favour. The result, or so we hope, is a portfolio that is far less risky than the overall market portfolio"
"The companies we own, taken as a whole, are of a higher quality than the market average. They have higher returns on equity and higher returns on capital. They have incomparably less debt than the market average. Some of them even have no debt at all. This makes them more resilient and less dependent on external financing. In our view, their managements have the important ability to allocate capital efficiently in addition to the ability to manage the business itself. This is a rare but very important skill upon which we place great emphasis."
kiora
06-12-2023, 10:27 AM
"Why is company culture so important and what are you looking for specifically when you invest?
Corporate culture comes to the fore in the way a company treats its customers and its employees, whether it makes decisions for the short or the long term, and whether it complies with or breaks the rules.
As an investor, all of this is highly relevant to both growth and risk. As the world has become more transparent and news of unhappy employees or customers travels faster, culture has never been more relevant to corporate growth and success"
https://www.livewiremarkets.com/wires/why-this-investor-would-not-make-one-change-to-his-portfolio-even-if-a-recession-was-certain?utm_medium=email&utm_campaign=Trending%20on%20Livewire%20-%20Wednesday%206%20December%202023&utm_content=Trending%20on%20Livewire%20-%20Wednesday%206%20December%202023+CID_a8c67e07ff7 294520d27b1981e86f7d3&utm_source=campaign%20monitor&utm_term=HIGH%20CONVICTION
Competitive returns > S & P 500
https://www.aoris.com.au/fund#performance
kiora
23-12-2023, 03:14 AM
One of the many reasons why I NEVER look to use "short positions"
Statistically who wins ?
"Short sellers lost close to $178 billion in 2023"
https://finance.yahoo.com/news/short-sellers-lost-close-to-178-billion-in-2023-152135596.html
"Shorting is like swimming against a current."
https://www.quora.com/Why-is-the-win-rate-of-long-positions-higher-than-short-positions
kiora
23-12-2023, 03:35 AM
Many reasons here why I never invest in real estate
https://www.sharecafe.com.au/2023/12/22/investment-perspectives-12-surprising-charts-for-your-christmas-stocking-2/
Many reasons here why I never invest in real estate
https://www.sharecafe.com.au/2023/12/22/investment-perspectives-12-surprising-charts-for-your-christmas-stocking-2/
Thanks for posting the link, interesting read.
kiora
08-01-2024, 12:52 PM
Some useful ideas about buying a business.
Its no different to buying shares/or buying a share in a business
https://www.fullyinformed.com/about-me-my-strategy/treat-investing-business/
"It meant that when my broker told me that everyone was losing money, it was an excuse – not a reason for being unprofitable"
" As I was now running a business I needed products that I could “sell” long term and rely on for steady income"
"Every stock that did not pay a dividend I sold. I didn’t even look at the price. There were some big losses and very few gains."
"Studying The Inventory:
Once I had set up my consistent income, I then took the time to analyze my inventory. In a business, inventory can make or break your business. If I have too much inventory or the wrong inventory such as the products that no one wants, then my business will suffer. I needed inventory that could perform. That meant that I had to look hard at the stocks I was buying. They had to be paying increasing dividends so that each year I knew my earnings would increase"
"I also weeded out those stocks that paid low dividends, or were not increasing their dividends. I went from 50 stocks and mutual funds from my former employee’s (ie broker) recommendations down to 12."
"The Lender:
With my business plan in hand I went to 4 different banks."
"Both offered to pick up my mortgage and restructure it so that some of the interest would be tax deductible against my investing “business” earnings. It was the fourth bank though that offered me prime rate borrowing and offered to set up the load in such a way that every payment I made to the mortgage would increase the amount available for borrowing for investing. They told me I could pay whatever I wanted at any time, daily, monthly or whenever"
" It was then that I realized that the main goal was to invest 5% of everything I earned and receive at least 10% a year on all my investments and compound those returns yearly, as my spreadsheet told me that over the next 35 years it would mean I could retire by 60 if:
1) I didn’t lose any capital
2) I consistently made 10% annually.
3) I reinvested the earned capital"
Not for me !
"That’s where naked puts and covered calls came into play."
But important
"I also find it interesting to note that, like in business, a good performance tracking system in which you track all transactions and their profit and loss, identify trends, see what works and what doesn’t, identify variances from plan and apply the required corrective actions are all what I find “good business practices” that apply to investment like they apply in managing a business for performance."
kiora
09-01-2024, 06:06 AM
Do you want to invest in a serial business builder or not?
If you want to view how any company will be doing in 5 years time look at what the CEO says & does
If you want to view how any company will be doing in 20 years time look at how well CEO succession is implemented.
https://www.mckinsey.com/capabilities/mckinsey-digital/our-insights/where-delegation-fails-five-things-only-the-enterprise-ceo-can-do-to-build-new-businesses
" Serial business builders generate an average of 40 percent greater revenue for each new business they build when compared with first-time new-business builders"
https://www.investopedia.com/ask/answers/010815/how-does-change-ceo-impact-stock-price.asp
kiora
10-01-2024, 04:44 AM
I only want to invest in companies where all stakeholders are aligned
"How to Create a Stakeholder Strategy"
https://hbr.org/2023/05/how-to-create-a-stakeholder-strategy
"firms can use data—which is increasingly accessible and rigorous—to craft and implement effective growth strategies that recognize the complex interdependencies among stakeholders, create mutual benefits for them, and increase the net value generated collectively for their constituents"
"All that data was clear: The companies that create the greatest total value across all dimensions of performance don’t do so at the expense of shareholder value"
"the 100 companies on the S&P/Drucker Institute Corporate Effectiveness Index, which consists of S&P 500 firms that are the best at creating value through “excellence in employee engagement and development, customer satisfaction, social responsibility, innovation, and high-quality earnings,” delivered total shareholder returns that were more than 200 basis points higher per year, on average, than those of the S&P 500"
"It stands to reason that such firms are more likely to generate long-term shareholder value than flashier companies rife with burned-out employees and distrustful customers."
"Step 1: Make sense of outside perspectives"
"the importance of integrated value creation for all stakeholders. “One of the things I’ve recognized is that the CEO’s job is to figure out how to harmonize the multiple constituents who are all important,” including investors, customers, employees, partners, and governments"
"Step 2: Create your own stakeholder strategy"
"“We’ve got essentially four things to do in our business: We have to obey the law, we’ve got to take care of our customers, take care of our people, and respect our suppliers. We think if we do those four things, pretty much in that order, that we’re going to do what we have to do in the long term, which is to reward our shareholders"
"The leaders decided to change the firm’s mission statement from “Our goal is to deliver top-quartile financial results by developing industry-leading innovations” to “Our mission is to help health care providers improve the lives of patients by creating a business system that grows long-term value for all our stakeholders.” "
"Step 3: Create systems to sustain your stakeholder strategy."
"Establishing new processes that helped grow stakeholder value. Ward and the CFO asked all business units to begin their quarterly business reviews with descriptions of their value creation trends and targets. They also changed the process for investment proposals. In the past proposals had made only financial forecasts. Now major proposals had to project the impact on stakeholders. If tough trade-offs were necessary, they would be made using the priorities and weights defined by the strategy."
" They changed the company’s investor reports and conferences to highlight stakeholder value successes and began meeting with investment funds that favored stakeholder capitalism. They revised recruiting messages and employee evaluation criteria to stress empathy for patients and fulfillment through collaborative teamwork"
"Companies that create strategies to benefit all stakeholders and establish systems for implementing them build businesses that are more successful and resilient:
kiora
10-01-2024, 10:24 PM
Its not rocket science :KISS
Long term, investing in companies providing essential goods & services is hard to beat
https://www.firstsentierinvestors.com/content/dam/web/fsi/assets/asia/hk_en_insto/insight-articles/2021/202104-FSI-Billionaire-Buddies-EN.pdf
"This combination has yielded consistent profit growth through economic cycles.I felt it was an opportunity to buy a business that is going to be
around for 100 or 200 years, that’s interwoven with the American
economy in a way that, if the American economy prospers, the
business will prosper"
First "many of these assets operate in positive industry structures
with high barriers to entry, a limited number of competitors and
strong pricing power. They operate either as regulated
monopolies (utilities), or in regional oligopolies (freight railways,
waste management and private jet airports). These industry
structures allow rational pricing behaviour and capital discipline
which enables these assets to deliver returns well above cost of
capital and pricing growth at or above inflation over long
time frames."
Second "This stability of demand underpins defensive earnings streams, protecting
profits in downturns and growing them in upturns."
"Third, these companies have exposure to long-term positive
structural growth drivers. Electric utilities are fundamental to the
decarbonization of electricity through investment in carbon free
renewable energy. In Buffett’s own words, “We have got a big
appetite for wind or solar … If someone walks in with a solar
project tomorrow and it takes a billion dollars or three billion
dollars, we’re ready to do it”.(As provided by Longroad) Furthermore, freight railroads and electric utilities are key enablers in the decarbonisation of the
transportation sector while waste management has expansion
opportunities in recycling. This all results in a long pipeline of
infrastructure investment opportunities and underpins long-term
structural earnings growth."
Then use sensible gearing to deliver 15-20 % CAGR,using a simple business structure and can be intergenerationally simple.
Live by
KISS:Keep it simple stupid
There is no need to sit in front of a screen all day gnashing teeth.
kiora
12-01-2024, 09:59 PM
""We're as lazy as possible," Elfenbein said. "That's the goal.""
https://finance.yahoo.com/news/finance-blogger-outperformed-warren-buffetts-230457247.html
kiora
24-01-2024, 09:21 AM
One way of doing it
https://www.livewiremarkets.com/wires/how-to-spot-a-10-bagger-and-the-next-asx-darling-that-could-be-headed-for-the-moon?utm_medium=email&utm_campaign=Trending%20on%20Livewire%20-%20Wednesday%2024%20January%202024&utm_content=Trending%20on%20Livewire%20-%20Wednesday%2024%20January%202024+CID_5466c49e180 cde0246e94415241bde6c&utm_source=campaign%20monitor&utm_term=10-BAGGERS
"How to spot a 10-bagger (and the next ASX darling that could be headed for the moon)"
"The ASX's next great 10-bagger
According to Prunty, small caps are the best hunting ground for 10-bagger stocks - mostly, because they need the space to grow. Other than being a small cap, there are two other filters that investors should use, being companies with earnings and solid competitive advantages.
"10-baggers are not as speculative as they might first appear," he argues.
"They have identifiable business models. Of the businesses on that list, almost all of them had revenues and earnings - so you didn't need to take a massive leap of faith on the business model."
"So there is some value in the phrase "let your winners run". "
When it comes to competitive advantage - businesses need a "secret sauce" that will help them grow their earnings consistently over long periods of time - whether it be something unique about the business model or its management. "
""It's the leader in their field and it's a massive market. They're already growing their revenues at a rate which, if sustained, will mathematically get them to that 10-bagger status," Prunty says.
Taking the list above as inspiration, Prunty argues that the success of these businesses has been driven by "fundamentals" or earnings performance. So, if investors are assessing whether a busy can become a 10-bagger, they need to ask themselves the following question:
Is this business growing its revenues at a double-digit rate and can it sustain that growth for a very long time?
For a business to be able to sustain this type of growth, it needs a competitive advantage."
""It also needs a big enough market to grow into so you're not running up against growth constraints. The good thing for Life360, in particular, is it has a very significant number of users who are not paying for the service," Prunty explains.
"So there are two levers of growth - one is getting unpaid users to pay and the other one is international expansion beyond North America.""
PS :Note the PE ratio's
If you're looking for "value investments " you're looking in the wrong place
kiora
25-01-2024, 10:19 PM
"Residential investment property is a sub-par way to grow your wealth"
https://www.livewiremarkets.com/wires/residential-investment-property-is-a-sub-par-way-to-grow-your-wealth-part-2-2?utm_medium=email&utm_campaign=Trending%20on%20Livewire%20-%20Thursday%2025%20January%202024&utm_content=Trending%20on%20Livewire%20-%20Thursday%2025%20January%202024+CID_d5900bff7773 004d7009a7ae63d6bc4e&utm_source=campaign%20monitor&utm_term=RECOMMENDED%20READING
"three major, and often ignored, issues
"Reason 1 is that costs are very rarely considered when talking financial returns."
"Reason 2 - Liquidity
There are several different risks in all types of investments, but one “risk” dominates all “risks” in all investments - it’s the risk of losing value. But there are other risks, many of them in fact. In the world of residential real estate investment, often forgotten are interest rate risk, inflation risk (kind of linked), operating/management risk, Government policy risk, and maybe the dandy of them all, liquidity risk.
"That’s going to be at least 2 months. At least. The point is, real estate transactions take a long time"
"Reason 3 - Yield
In short, the yield is very often very low. Routinely, residential real estate is getting sold for investment purposes sometimes yielding in the 2s, likely in the 3s, rarely in the 4s"
"These three issues aside though, there is one unique benefit to investing in residential real estate that is offered at a level unrivalled by essentially any other asset class.
Leverage"
"if you’re willing to take a similar style of risk you take in property (that is, leverage, although at a much lower LVR mind you), but instead take it in US shares, and if you’re willing to be just as diligent in paying off the debt, your long term return, apples-for-apples, is much better in liquid capital markets than it is in residential real estate.
And you’ve essentially eliminated all liquidity risk"
Note:
Also Australasian shares & FUM not just US shares
Benefited from this buying ahead of markets/a share/a FUM rising in multiple instances using revolving credit or OD that has been secured over property
kiora
30-01-2024, 09:26 AM
https://www.livewiremarkets.com/wires/how-this-fundie-unearths-small-cap-winners-and-one-stock-for-the-year-ahead?utm_medium=email&utm_campaign=Trending%20on%20Livewire%20-%20Tuesday%2030%20January%202024&utm_content=Trending%20on%20Livewire%20-%20Tuesday%2030%20January%202024+CID_9e7d2f82218aa 529edfab1d8f64fd9e6&utm_source=campaign%20monitor&utm_term=ACCESS%20THE%20INSIGHTS
"interesting lessons for us as investors:
1.Quality companies tend to resist reversion to the mean and outperform for longer than expected, and
2.Patience is required to fully reap the benefits of a successful investment thesis. One of the most damaging mistakes investors make is selling winners too early and reinvesting the proceeds into their losers."
"once we have purchased a truly great business that is compounding earnings the best thing we can do as investors is get out of the way and not interrupt this process unnecessarily."
PS Great companies perform continually irrespective of the economy at the time
" We believe the root of this strong performance is an intangible and hard-to-analyse competitive advantage built upon the company’s unique culture. We have seen firsthand that staff love to work in these stores, and customers are unusually loyal."
kiora
01-02-2024, 11:56 AM
If in doubt get out at market ASAP
"Stocks that "beat and miss": How they perform today and after the report
With data from the last 16 reporting seasons, we take a closer look at how companies have performed post-results."
https://www.livewiremarkets.com/wires/stocks-that-beat-and-miss-how-they-perform-today-and-after-the-report?utm_medium=email&utm_campaign=Trending%20on%20Livewire%20-%20Thursday%201%20February%202024&utm_content=Trending%20on%20Livewire%20-%20Thursday%201%20February%202024+CID_c50cca310f3b a38d943fd289c39a8806&utm_source=campaign%20monitor&utm_term=READ%20MORE
"This is a good indicator but you must instead look at something that has an excellent rate of success. After analysing 7.5 years and 15 actual reporting seasons, it’s far more important to look at what a stock does "on day one of reporting". That is because the market gets it right about 70% of the time via its day one reaction.
So you buy the stocks that are up on day one (or more importantly, don’t sell them after a big move to the upside (shorts will need to cover over the next few weeks). A "beat or "miss" may look like a good guide but more importantly, you sell the stocks that go down on day one - ASAP."
kiora
02-02-2024, 05:46 AM
A bit of clip bait but also interesting ideas?
Follow the winners,its a good habit to have.
https://finance.yahoo.com/news/ryan-reynolds-co-owned-sold-223011187.html
"Shortly after the T-Mobile sale was announced, he was on to his next business venture. In an April 2023 Squawk Box interview to discuss his investment in fintech company Nuvei Corp., Reynolds said, "I know nothing about fintech" and “Thank God I am not running the company.” He acknowledged the importance of teamwork behind the scenes and his belief in emotional investing.
“How does this happen if you look at a gin company, a wireless company and Welsh football club? They don’t go together, but they all had strong brand foundations,” he said in the interview. He opts for strong companies that have room to grow in terms of storytelling, which he often reiterates is the key to his marketing success and what makes his approach unique.
Reynolds’ business strategy is both practical and intuitive. He recognizes the importance of personal consumer connections, transforming his investments into more than business ventures. His blend of entertainment skills and entrepreneurial insight creates an effective business model."
kiora
06-02-2024, 10:36 AM
The theme resonates with me
"The case for keeping it simple(and how it helped this fundie return 30.8% in 2023) "
https://www.livewiremarkets.com/wires/the-case-for-keeping-it-simple-and-how-it-helped-this-fundie-return-30-8-in-2023?utm_medium=email&utm_campaign=Trending%20on%20Livewire%20-%20Tuesday%206%20February%202024&utm_content=Trending%20on%20Livewire%20-%20Tuesday%206%20February%202024+CID_52badf058b956 f09c527c97aa96f89d7&utm_source=campaign%20monitor&utm_term=READ%20MORE
""Most investors, naturally, think all this data and IT will help them invest well," explains Stephen Arnold, the managing director and CIO of Aoris Investment Management.
"Yet, there is no evidence that businesses are more accurately priced in the stock market than they were 30 years ago."
Arnold believes that investors are better placed to keep their processes as simple and "common sense" as possible - make relatively few decisions each year and be aware of the many behavioural biases that come with being human. "
" They must be highly profitable, economically resilient, have breadth across multiple markets, and have been around for a long time. As owners, we will participate in the growth in intrinsic value of these businesses over time.
Then comes the price. If we can own them at some discount to their intrinsic value today, we will benefit from revaluation as share prices converge on fair value."
"Three common characteristics these businesses share are:
They are leaders in their markets and have consistently gained share through time.
They have extremely frugal cultures, which allows them to be both price-competitive and highly profitable.
They are run with a very long-term mindset. They are patient yet ambitious."
"We discover and learn about businesses in multiple ways – reading widely, company visits and using quantitative screens. In the case of Copart, the founder wrote a book on the company’s history called Junk to Gold; I read it and was intrigued."
"We do that through reading their public material and speaking and visiting them. We seek out businesses where management communicates clearly and transparently and wants us to understand them."
"We want to be long-term owners of outstanding businesses. We know the operating environment won’t be easy every year, but the best companies will cope with challenges better than their peers"
"Consistent profitability and strong balance sheets, allowing them to benefit when financially fragile competitors had to pull back on marketing and hiring as interest rates rose."
"The Spirit is the Difference, which spells out their culture and values and what’s expected of people who work there. In a nutshell, it’s all about adding value to its customers. The outcomes are amazing. Cintas keeps its customers on average for 25 years, consistently wins new customers, and grows twice as fast as its peer group."
"“Investing is about judgements, not the quantity of information”"
"We believe we will be successful as investors in a way that is durable if we:
Stay true to our business and investing principles,
Think independently,
Remain comfortable being different, and
Always strive to improve. "
kiora
12-02-2024, 11:46 AM
"Navigating The ‘Not so Easy Money’ Era"
https://simplywall.st/article/navigating-the-not-so-easy-money-era?utm_source=braze&utm_medium=email&utm_campaign=Market+Insights:+Week+06+2024+-+active&utm_content=Variant+1
"investors should consider the prospect of rates remaining higher for longer."
“I believe investors can gain an advantage by studying cycles, understanding their causes, and watching for excesses in one direction that are likely to lead to corrections in the opposite direction.” - Howard Marks"
"The Effect of Low Interest Rates
Marks mentioned the following 10 effects of low rates:
Low interest rates stimulate the economy
Low interest rates reduce perceived opportunity costs
Low interest rates lift asset prices
Low rates enable deals to be financed readily and cheaply
Low interest rates can lead to financial mismatches
Low interest rates encourage greater use of leverage, increasing fragility
Low interest rates encourage risk taking, leading to potentially unwise investments
Low interest rates give rise to expectations of continued low rates
Low interest rates bestow benefits and penalties, creating winners and losers
Low rates induce optimistic behavior that lays the groundwork for the next crisis
We’ve changed his order slightly, but the point is:
The first five are mostly about the maths.
The second five are about behavior, and are easy to overlook.
The behavior of investors, business leaders, and consumers changes when rates are low - or expected to fall or remain low. This behavior has longer term consequences for the economy and individual companies.
" When rates are low, lenders and investors are forced to take on more risk to earn a return. This leads to higher asset prices and more investment - but eventually reality catches up, leading to a scarcity of credit - and higher rates, which is the price of that credit."
kiora
19-02-2024, 04:47 AM
"4 important investment lessons from this 6-bagger stock
"Letting your winners run" is a trite saying that's rarely accurate, but it played out for this British software company"
https://www.livewiremarkets.com/wires/4-important-investment-lessons-from-this-6-bagger-stock?utm_medium=email&utm_campaign=Trending%20on%20Livewire%20-%20Saturday%2017th%20February%202023&utm_content=Trending%20on%20Livewire%20-%20Saturday%2017th%20February%202023+CID_701f8c1a5 afaf916622a49eb03573b5a&utm_source=campaign%20monitor&utm_term=4%20LESSONS
Do Your research !
"The stock price fall might have been entirely justified, but we felt it was also fertile ground for overreaction. After speaking with one of the founders, with sales executives and customers, we developed confidence that Blancco remained a growing business with significant tailwinds, happy customers and strong profitability.
After laying out a full thesis in 2017, it was at this point that we made an initial investment in the company right into the teeth of the market panic.
Increase weighting with greater confidence
A new CEO, Matt Jones, joined the business in March 2018 and released his first set of results a few months later. This also included an updated strategy for the company. These results confirmed that Blancco’s problems were temporary. These developments helped confirm the team’s initial thesis.
During the next couple of years, by June 2019, Blancco moved firmly out of recovery mode and into growth mode. Sales and profit expectations for the financial year 2019 were upgraded."
“Let your winners run” is one of those trite sayings that is wrong as often as it is right. But business valuation is an inexact science and risk is a variable. Forager’s “upside” valuation didn’t change dramatically through this period, but the probability of that case unfolding increased dramatically alongside Blancco’s growth, profitability and cash flow."
Make big aggressive bets, up to 50% of portfolio value, when you know the investment really stakes up
I've done this 5 x now over 4 decades.
The more often this is done & succeeds the less % downside risk to your total portfolio as any new position will be a smaller % of the total portfolio value
"We should have bought more aggressively."
Don't be left wondering !
"Developing a thesis that is both contrary and correct is everything when it comes to stock market outperformance. It’s periods and locations of immense pessimism where such opportunities are most likely to be found.
Due diligence is crucial here: It can enable you to confidently turn a loose theory into a firm thesis.
Risk management is key but rework your odds as new information arrives. Just because a stock has doubled since you bought it, doesn’t mean that the risk/reward equation has deteriorated.
Managing position size as your perceived edge grows or shrinks."
Being overweight in one stock/investment is no different to buying a business.
After all,how have the extraordinary wealthy accumulated their wealth?
This is one area were private investors have an advantage over fund managers as managers rules will exclude them from being so overweight in one stock or investment.
kiora
20-02-2024, 11:43 PM
If you don't measure,record & compare you won't know
From Marketscreener
"Dear investor,
Are you suffering from The Dunning-Kruger Effect?
Now, if you don’t know what that is, allow me to explain…
The Dunning-Kruger Effect is a cognitive bias where an unskilled investor overestimates their ability to find winning and profitable trades.
You see, many investors scored big profits in 2020 and 2021 during the bull market.
However, it all changed at the start of 2022…
…when all of a sudden fundamentals mattered again.
In fact, if you ran the 2020 playbook this year, there is a good chance your portfolio has gotten obliterated… or even worse…wiped out completely."
https://www.investopedia.com/dunning-kruger-effect-7368715
"Minimizing the Dunning-Kruger Effect can be achieved through education, training, accepting criticism and feedback, and taking in objective evaluations of knowledge or ability."
kiora
25-02-2024, 12:44 PM
Some 'guru STers' are very good at timing the market?
"78% of the stock market’s best days occur during a bear market or during the first two months of a bull market."
https://www.hartfordfunds.com/practice-management/client-conversations/managing-volatility/timing-the-market-is-impossible.html?utm_campaign=social&utm_content=TimingImpossible&utm_medium=social&utm_source=linkedin.com
Not for me but If someone wants to spend more time on investment decisions
https://www.investopedia.com/articles/trading/filters-and-triggers.asp
But beware of the traps
"Filtering Considerations
An important consideration in choosing trade filters is not to limit the "degrees of freedom" in a trading plan. In other words, too many filters may create a statistically improbable trading setup that would rarely, if ever, be true. This greatly limits the ability of a trading plan to be robust, consistent, and profitable. "
In the final wash up its fear & greed that drives the market & there is alot of click bait out there.
kiora
25-02-2024, 01:12 PM
And then there are the 'whales'
"5 Stock-Picking Secrets of the Whales"
If you follow them you will be too late to the show?
https://www.nasdaq.com/articles/5-stock-picking-secrets-whales-2015-08-14
kiora
26-02-2024, 06:59 PM
Mysterious:My portfolio returns are highest when I'm most generous with my time &/or funds
It (literally) pays to be generous.,you will be repaid in spades.
https://ethicalleadership.nd.edu/news/it-pays-to-be-generous/#:~:text=One%20advantage%20of%20generous%20people, or%20find%20new%20business%20opportunities.
Studies on being generous
https://ggsc.berkeley.edu/images/uploads/GGSC-JTF_White_Paper-Generosity-FINAL.pdf
kiora
28-02-2024, 03:08 AM
Anology of a decent investment.
"A great company at a fair price"
They come looking for you if you look in the right places
"Liegl: Yes, as Warren Buffet says, if you’ve got a
baseball team and a guy is batting .400, you don’t
try to teach him how to swing"
https://www.berkshirehathaway.com/letters/rvbiz.pdf
kiora
02-03-2024, 09:44 AM
Why would any investor want to hold bonds or cash in their portfolio ever?
Or are they better at timing the market than everyone else?
Yeah right .
Third Chart: Stocks vs bonds in Australia
https://assets.livewiremarkets.com/rails/active_storage/representations/proxy/eyJfcmFpbHMiOnsibWVzc2FnZSI6IkJBaHBBL2RoQ2c9PSIsIm V4cCI6bnVsbCwicHVyIjoiYmxvYl9pZCJ9fQ==--10acb4782f94def1762bde9b166847d4e1fa3f8b/eyJfcmFpbHMiOnsibWVzc2FnZSI6IkJBaDdCem9MWm05eWJXRj BPZ2wzWldKd09oUnlaWE5wZW1WZmRHOWZiR2x0YVhSYkIya0NB QVZwQXNBRCIsImV4cCI6bnVsbCwicHVyIjoidmFyaWF0aW9uIn 19--8ed202be42b57b2a4a9aaabac30fb37339436460/Screenshot%202024-03-01%20at%2010.21.04%E2%80%AFam.png
Source: AMP, Macrobond
What is it? The cumulative, total return performance of stocks vs bonds vs cash in the Australian market.
Why does it matter? The returns in shares continue to far outpace bonds and cash. Even in its exaggerated form, the magic of compounding interest still stands.
"That should be the dominant motivator to invest," Oliver says. "Of course, you're going to have setbacks and they will all feel very gloomy, whether it's the 1970s and the GFC. All those things happened but for someone who took advantage of those dips, they did fantastically well," Oliver adds.
Source: AMP, Macrobond
https://www.livewiremarkets.com/wires/the-policy-overhaul-shane-oliver-would-make-to-secure-australia-s-fortunes?utm_medium=email&utm_campaign=Trending%20on%20Livewire%20-%20Saturday%202%20March%202024&utm_content=Trending%20on%20Livewire%20-%20Saturday%202%20March%202024+CID_529414e33fc25ed 829fcc465ca98a1af&utm_source=campaign%20monitor&utm_term=THE%20RULES%20OF%20INVESTING
kiora
06-03-2024, 10:57 AM
Turn Arounds
Often starts with a discounted capital raise
If done right turn around stories are a great investment.Reminds me of SKL many years ago,capital raise at $0.50
"Things to look out for
-Is the business well capitalised: As we noted above, Bravura had a market cap of $120 million with approximately $85 million cash after the capital raise
-Share price consolidation: Bravura traded within an extremely narrow range for more than three months
-A turnaround is taking place: Bravura's FY23 result, November AGM and 1H24 result all contained positive surprises. The turnaround is clearly gathering some momentum
https://www.livewiremarkets.com/wires/my-favourite-asx-turnaround-story-of-2023-24?utm_medium=email&utm_campaign=Trending%20on%20Livewire%20-%20Wednesday%206%20March%202024&utm_content=Trending%20on%20Livewire%20-%20Wednesday%206%20March%202024+CID_0e0bc331b6d37e e447f4bc48a7728f2c&utm_source=campaign%20monitor&utm_term=FIND%20OUT%20MORE
kiora
07-03-2024, 02:31 AM
"Delivering "wealth beyond measure"
What's this magic feature?
These are Buffett's words:
At Berkshire, we particularly favor the rare enterprise that can deploy additional capital at high returns in the future. Owning only one of these companies -- and simply sitting tight -- can deliver wealth almost beyond measure."
https://finance.yahoo.com/news/warren-buffetts-favorite-companies-1-122600682.html
kiora
07-03-2024, 10:04 AM
The old addages
"21 great investment quotes from Warren Buffett, Benjamin Graham, and others"
https://www.livewiremarkets.com/wires/21-great-investment-quotes-from-warren-buffett-benjamin-graham-and-others?utm_medium=email&utm_campaign=Trending%20on%20Livewire%20-%20Thursday%207%20March%202024&utm_content=Trending%20on%20Livewire%20-%20Thursday%207%20March%202024+CID_19df3bf18689c88 8d1a65053cb1171d8&utm_source=campaign%20monitor&utm_term=TOP%20QUOTES
"“More money has been lost trying to anticipate and protect from corrections than actually in them.”
Reticence is everywhere
kiora
10-03-2024, 04:52 AM
Investment advisors recommend rebalancing the portfolio,for mediocracy?
"78% of Warren Buffett's $369 Billion Portfolio Is Invested in Just 6 Stocks"
"firmly believed that their top investment ideas deserve added weighting"
"Even after Buffett and his team reduced their company's stake in Apple by roughly 1% during the December-ended quarter, it still accounts for 44% of invested assets."
"Even though recessions are an inevitable part of the economic cycle, economic downturns pass quickly. Whereas no recession since the end of World War II has lasted longer than 18 months, two periods of growth over the same span stuck around for at least a decade. Companies like Bank of America should be able to successfully grow their loan portfolios over time as the U.S. economy expands."
"in addition to facilitating transactions and collecting a fee from merchants, American Express is also acting as a lender to consumers and businesses in which it earns annual fees and interest income. During extended periods of economic growth, AmEx's ability to double-dip allows it to thrive
"Coca-Cola also enjoys virtually unsurpassed geographic diversity. With the exception of Cuba, North Korea, and Russia, it has existing operations in every other country."
"The "integrated" aspect of Chevron's operating model is also important. Although drilling generates its juiciest margins, Chevron owns transmission pipelines, chemical plants, and refineries. If the spot price of crude oil declines, the company's midstream and downstream assets act as a hedge that stabilizes its cash flow"
"Occidental brings in the lion's share of its revenue from its upstream drilling segment."
kiora
18-03-2024, 08:47 AM
Are you addicted to wealth?
"“The question I always get asked by the media is what is the difference between a healthy excessive enthusiasm and an addiction,”
https://www.cnbc.com/2014/02/05/is-wealth-accumulation-an-addiction-occupy-wall-street-bonuses-inequality.html
"Cooking the Books: ‘Rich listers get addicted to the success, not the money’
https://businessdesk.co.nz/article/podcasts/cooking-the-books-rich-listers-get-addicted-to-the-success-not-the-money?utm_source=7am+Headlines+from+BusinessDesk&utm_campaign=dbd2ea1272-7am+Headlines&utm_medium=email&utm_term=0_617c2ef34a-dbd2ea1272-446239310
kiora
19-03-2024, 08:53 PM
"Wrestling the gorilla"
"Despite incessant commentary to the contrary, the US economy is the strongest it has been in over 30 years"
" It’s very important with this in mind to note that factually, when everything seems bleakest it is uncannily common for it to be at its brightest.
Let’s look at the economic gorilla of the world – the USA. At the end of 2022 and early 2023, most managers, economists and commentators warned that bad times lay ahead. Here are 8 key indicators that show that for last year and indeed for at least 30 years, the US has never been in better shape."
"Will the good times end?
Perhaps it’s best said by that infamous barman from the 1980s movie ‘Cocktail’...
“Everything ends badly otherwise it wouldn’t end.”
The unknown but most essential question is of course when?
For those in cash, and there has been a lot sitting on the sidelines for years now, bad times would have to be catastrophic, with an ending of biblical proportions. Not only that, but those in cash would also have to make immediate constant gains and have that continue for years afterwards, just to keep alongside in dollar value terms those who remained invested in productive business assets all these years.
The odds of a biblical sized catastrophe and timing it close enough to exit, then re-enter at the gloomiest most negative point, compared to hanging in and not getting spooked, are very low indeed."
https://www.goodreturns.co.nz/article/976522922/wrestling-the-gorilla.html?utm_source=GR&utm_medium=email&utm_campaign=GoodReturns+Market+Report+for+19+Mar+ 2024
kiora
19-03-2024, 09:30 PM
"Wrestling the gorilla"
"Despite incessant commentary to the contrary, the US economy is the strongest it has been in over 30 years"
" It’s very important with this in mind to note that factually, when everything seems bleakest it is uncannily common for it to be at its brightest.
Let’s look at the economic gorilla of the world – the USA. At the end of 2022 and early 2023, most managers, economists and commentators warned that bad times lay ahead. Here are 8 key indicators that show that for last year and indeed for at least 30 years, the US has never been in better shape."
"Will the good times end?
Perhaps it’s best said by that infamous barman from the 1980s movie ‘Cocktail’...
“Everything ends badly otherwise it wouldn’t end.”
The unknown but most essential question is of course when?
For those in cash, and there has been a lot sitting on the sidelines for years now, bad times would have to be catastrophic, with an ending of biblical proportions. Not only that, but those in cash would also have to make immediate constant gains and have that continue for years afterwards, just to keep alongside in dollar value terms those who remained invested in productive business assets all these years.
The odds of a biblical sized catastrophe and timing it close enough to exit, then re-enter at the gloomiest most negative point, compared to hanging in and not getting spooked, are very low indeed."
https://www.goodreturns.co.nz/article/976522922/wrestling-the-gorilla.html?utm_source=GR&utm_medium=email&utm_campaign=GoodReturns+Market+Report+for+19+Mar+ 2024
kiora
20-03-2024, 09:40 AM
https://www.cnbc.com/2017/10/17/how-warren-buffett-taught-peter-lynch-the-value-of-making-mistakes.html
Legendary investors Warren Buffett and Peter Lynch have both used versions of the quote: Selling your winners and holding your losers is like cutting the flowers and watering the weeds
kiora
20-03-2024, 09:48 AM
"When Adam Smith met Warren Buffett
History rhymes because human nature never changes. It's a fact worth remembering in today's stretched markets"
"No matter what role the investor has started with, in a climax on one side or the other the role melts into the crowd role of greed or fear. The only real protection against the vagaries of identify-playing, and against the final role of being part of the crowd when it stampedes, is to have an identity so firm that it is not influenced by all the brouhaha in the marketplace.
…the end object of investment is serenity, and serenity can only be achieved by the avoidance of anxiety, and to avoid anxiety you have to know who you are and what you’re doing."
https://www.livewiremarkets.com/wires/when-adam-smith-met-warren-buffett?utm_medium=email&utm_campaign=Trending%20on%20Livewire%20-%20Wednesday%2020%20March%202024&utm_content=Trending%20on%20Livewire%20-%20Wednesday%2020%20March%202024+CID_a757311d426fc 864c245dcc794749456&utm_source=campaign%20monitor&utm_term=INVESTING%20LESSONS
kiora
20-03-2024, 09:48 PM
Who dares wins,play the odds
As long as an investor can stay in they will came out ahead given these odds.
"“Given a 10 percent chance of a 100 times payoff, you should take that bet every time.”"
Aportioning % of a portfolio to start with could be sensible as well !!!
Then NOT rebalancing the portfolio if an investment becomes oversized
But it also means adding to it as 'milestones' are reached
https://finance.yahoo.com/news/jeff-bezos-believes-given-10-203012780.html
Jeff Bezos, the innovative force behind Amazon.com Inc., has never been one to think small or play it safe. In his 2016 shareholder letter, he used a relatable metaphor that captures the essence of success in investing: “We all know that if you swing for the fences, you're going to strike out a lot, but you're also going to hit some home runs.”
Striking Out Is Part Of The Game: The Price Of Growth
Taking big swings in your portfolio, whether it’s investing in a high-growth stock or pursuing an alternative asset class like real estate, comes with a high chance of encountering short-term volatility or temporary losses. Just like a baseball player can’t guarantee a hit every time at bat, setbacks are inevitable on the path to building long-term wealth."
https://finance.yahoo.com/news/jeff-bezos-says-swing-fences-140013492.html
Baseball players aren't going to make a home run if they don't take a big swing
kiora
21-03-2024, 09:14 AM
I wouldn't get to excited about these two but good themes
"How to identify the best ASX tech stocks"
"Drivers of outperformance
High future earnings potential
Potential for analyst upgrades
Margin surprises"
Tech can continue to outperform
Strong earnings growth will in all likelihood be the main driver of continued outperformance in the sector. Additionally, potential rate cuts by the Fed later this year and the likelihood of lower bond yields could create a tailwind for growth-company valuations. These factors combined suggest tech stocks are well-placed to keep outperforming the broader market over the medium-term.
While some tech companies are becoming somewhat expensive relative to their earnings growth outlooks, there are still attractive opportunities at reasonable valuations that are well placed to outperform over the medium term.
The multifaceted approach to stock selection
Many investors get deterred by the high multiples tech stocks command. Relying on earnings multiples alone is unwise, which necessitates a more multifaceted approach when assessing tech company valuations.
The ASX 200 IT index only captures a portion of Australian tech. Many tech-driven companies reside in other sectors like media, consumer discretionary, financials, and real estate.
To identify the best ASX tech stocks:
Consider the stock's valuation relative to its longer-term growth potential. We can use the PEG ratio (price-to-earnings divided by 3-year earnings per share growth) to do this.
Evaluate how much future growth is already priced into the stock. A high PER in 3-5 years’ time suggests the market has already priced a lot of the growth.
Identify earnings upside surprise. Look for factors that could lead to the company increasing its earnings in excess of what analysts expect.
Financial Health. Look at other factors such as balance sheet, higher ROE and margins to ascertain the amount of profits that can be reinvested back into the business or used for acquisitions.
Figure 4: ASX tech screen. PEG offer a good starting place, but earnings quality, balance sheet and earnings upside are an important overlay.
https://www.livewiremarkets.com/wires/how-to-identify-the-best-asx-tech-stocks-and-two-key-picks?utm_medium=email&utm_campaign=Trending%20on%20Livewire%20-%20Thursday%2021%20March%202024&utm_content=Trending%20on%20Livewire%20-%20Thursday%2021%20March%202024+CID_e5b18e92a2a7eb 03c2cb43e7c8e876a9&utm_source=campaign%20monitor&utm_term=2%20TECH%20PICKS
kiora
21-03-2024, 10:21 AM
Arbitrage:Not a simple as it sounds?
https://www.livewiremarkets.com/wires/why-we-love-investment-bankers?utm_medium=email&utm_campaign=Trending%20on%20Livewire%20-%20Thursday%2021%20March%202024&utm_content=Trending%20on%20Livewire%20-%20Thursday%2021%20March%202024+CID_e5b18e92a2a7eb 03c2cb43e7c8e876a9&utm_source=campaign%20monitor&utm_term=LOVE%20STORY
Got to admire Mungers responses:“Charlie’s sign off after we’ve talked about an arbitrage commitment is usually: “Okay, at least it will keep you out of bars””.
"This is not how Charlie nor I wish to spend our lives. (What’s the sense in getting rich just to stare at a ticker tape all day?)”."
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