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stephen
23-01-2007, 12:34 PM
http://thebusinessonline.com/djstory.aspx?djid=20070119000291

By Mark Hulbert

ANNANDALE, Va. (Dow Jones) -- The performance of the Closed-End Country Fund Report newsletter just keeps getting curiouser and curiouser.

As I have several times mentioned over the past 18 months, this newsletter has not been published since mid 2004, more than two-and-one-half years ago. But since James Libera, the newsletter's editor, did not formally kill the service, instead indicating that he might someday resume regular publication, the Hulbert Financial Digest has continued to track the newsletter's performance by keeping watch over the last-known sighting of its model portfolio.

And what a performance it has been.

Since that last-known sighting, the newsletter's model portfolio has gained a total of 139.2%, according to the Hulbert Financial Digest. The newsletter was not only one of the top performers for calendar 2006 (coming in fifth out of the nearly 200 newsletters the HFD tracks), it has now emerged as the top performer for the past five years.

If you prefer an alternate literary reference to "Alice in Wonderland," take fellow columnist Peter Brimelow's. He refers to Libera as the newsletter arena's El Cid, the Spanish crusader whose corpse, dressed in armor and lashed to his horse, won a battle by panicking the enemy.

Uncharitable observers might be quick to dismiss the performance of the Closed-End Country Fund Report as yet more evidence that the newsletter industry is not worth paying attention to, edited by a bunch of lunatic self-promoters. If a newsletter can go into a two-and-one-half year hibernation and still come out on top of the five-year rankings, doesn't that just go to show how weak the competition is from fellow newsletter editors?

No.

Try comparing the five-year return of the Closed-End Country Fund Report to those of mutual funds. According to the five-year ranking of several thousand mutual funds constructed by Morningstar, this newsletter's performance is better than all but 12 of them.

I think we as investors have to face squarely the many lessons to be drawn from this newsletter rather than try to wriggle out from under them.

One of the most profound of these lessons is that you don't always have to be doing something in your portfolio in order to make money. Indeed, I suspect, constant fine-tuning is done more for psychological reasons than rational investment reasons.

Consider the results of an exercise I periodically conduct for the several hundred newsletters I track: Compare their calendar-year results with how they would have performed had they undertaken no transactions that year - sticking with whatever they were recommending at the beginning of that year.

Believe it or not, in every year I have conducted this exercise, the average newsletter would have been better off doing nothing.

The past year was no exception. The average newsletter model portfolio in 2006 gained 11.35%, according to the HFD. If none of these model portfolios undertook any transaction in 2006, however, this average would have been 12.15%, or 80 basis points higher.

In terms of proportions, 53% of the newsletters would have done better by doing nothing.

Note carefully that the HFD's calculations don't take taxes into account; if they had been, this proportion would have been even more unfavorable to active management. If we assume that on an after-tax basis the average newsletter kept 8% of its pre-tax 11.35%, for example, then the percentage of newsletters that would have been better off doing nothing last year grows to 72%.

The implication of these results is hard to accept, but inescapable: The average transaction undertaken by newsletter editors lowers returns. You don't have to be a rocket scientist to draw the corollary: If the average transaction lowers returns, you ought to undertake as few of them as possible.

Once again to try to avoid the implication of such a conclusion for all of us; we're likely to dismiss the newsletter industry as unrepresentative

ratkin
29-01-2007, 08:41 PM
I did a similar excercise looking back over my trading since 1992 and came to the startling finding that i would of been better off if i had never sold a single share.
Sure one or two would of gone to zero but they would of been more than compensated by some of those i sold increasing ten fold.

Internet dosent help , it makes it all far too easy to switch in and out of stocks , raking up brokerage fees and hopping from one to another.
Better off putting everything into a fundamentally sound portfolio, dissapearing to a desert island for ten years relaxation and returning to big profits

Deev8
31-01-2007, 10:49 AM
quote:Originally posted by ratkin

I did a similar excercise looking back over my trading since 1992 and came to the startling finding that i would of been better off if i had never sold a single share.

Of course that would probably mean that you wouldn't have the funds to invest in shares that you bought later. Would you have been better off if you had bought your first few shares, never sold them, and consequently never bought any of the later ones?

Winston001
01-02-2007, 08:26 AM
Interesting. I'm a fairly passive investor so can relate to this articles findings. For example, I bought Fletcher Challenge in 1981 for about $2.00. For many years it was up and down,reaching a nadir of $1.80 in the early 1990s. Fortunately I held on and was eventually rewarded with Fletcher Energy and my remaining holding of Fletcher Building shares.

Whether this investment even covered inflation over 25 years I don't know.

Similarly I've held ANZ shares since 1980 with excellent growth, always taking shares in lieu of dividend.

On the other hand, set and forget left me with Chase, Omnicorp, Primewest, Feltex, Repco (purchased at $2.85), and Telecom (purchased at $8.20 years ago).

So doing nothing has a cost too. My conclusion is that I'd have been far better over the years to have purchased land.

The rationale for shares is that they are portable, valued every day, almost immediately saleable, and must over time beat inflation and land value. Hah!

The problem in my experience is that you have to own the right shares all of the time to beat land - because only some shares rise enough at any one time. Last years winners aren't nescessarily going to be this years winners.

So I've saved and invested - which admittedly is fun - only to watch some of my peers enjoy holidays, spend freely, buy a heavily mortgaged house, and after 20 years they suddenly have a valuable property - almost by accident. They get the reward without thrift.

Funny old world isn't it. :D

stephen
01-02-2007, 02:12 PM
To be fair, the article doesn't say that we should literally do nothing, just that we should be more cautious than tipsters would have us be. If you couple that with a very conservative approach to share selection, to reduce your downside risk as much as possible at purchase - that's a pretty reasonable strategy. And one I'm trying to follow more and more.

Winston100: I hate looking after property. I like crunching numbers. And you have to remember there's a lot of heartache and stress in a hefty mortgage, tied to one asset.

duncan macgregor
21-04-2007, 08:41 AM
The reward for doing nothing is nothing. The value of people that do nothing with their share portfolio is of great value to the people that do something. The reason Most of the people that do nothing are like that are, they have nothing up top to do it with in the first place. Most get into sectors that are going nowhere, then scatter their selections about like eagle sh*t over the country side. They are inclined to buy more and more on down trends, telling all and sundry about what great dividends they have received.
The smart investor requires idiots in the market in order to make their systems work. I am trying to double the value of my portfolio this year over half way there already. SO ALL YOU NOTHINGS OUT THERE CARRY ON DOING NOTHING WE ALL LUV YOU.:D:D:D:Dmacdunk

mamos
21-04-2007, 02:25 PM
I believe it depends on your investment style. People like WB have performed very well through a long term buy and hold strategy.

However, if you have a short to medium term strategy then some changes are obviously required, maybe not every year but every 2 or 3 years. For example if you invest in the Uranium sector it would not be a wise idea to hold onto all your exploration stocks for the long term as most will no longer be companies in 5 years time. However the gains during this time will far outweigh a dividend paying company that you can keep for the long term.

Medium term investors who invest based on a particular industry require changes as in the long term everything reverts to the mean and it will not be profitable to continue investing in a particular industry.

I am a medium term investor myself and buying and selling the same companies may not need to be made for 5 years. i.e. I try to pick the excellent companies operating in growth industries. However, it is foolish to believe you can not worry about the bigger picture and what the trends in the economy are if this is your investment approach as growth industries only grow for so long.

FarmerGeorge
21-05-2007, 09:56 PM
I think Buffet was a little misunderstood in this regard. While his preferred strategy was well known, "buy a stock and hold it forever", it came with a number of caveats that meant he did sell more often than people realise. This is particularly true for his investments before BH but still holds (at least for his common stocks) today. In fact in one of his newsletters (2003/4?) he even lamented not having sold down some of his major common stock positions during the 99-00 bubble. I'm still new to the game but it seems that the really successful investors, ie those whose bank account balances are larger than their account numbers, tend to have a selling strategy as well as a buying strategy.

Longtack
13-06-2007, 11:46 AM
That's a fair and prudent observation Farmer George, and if one formulates one's exit/sell strategy at the time you buy you'll be more successful than not. Acting on it takes discipline though - part of the separation of emotion from business decisions.

Halebop
13-06-2007, 11:51 AM
quote:Originally posted by FarmerGeorge

I think Buffet was a little misunderstood in this regard. While his preferred strategy was well known, "buy a stock and hold it forever", it came with a number of caveats that meant he did sell more often than people realise. This is particularly true for his investments before BH but still holds (at least for his common stocks) today. In fact in one of his newsletters (2003/4?) he even lamented not having sold down some of his major common stock positions during the 99-00 bubble. I'm still new to the game but it seems that the really successful investors, ie those whose bank account balances are larger than their account numbers, tend to have a selling strategy as well as a buying strategy.


Bingo! :)