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View Full Version : Are the "pros" worth listening to ?



ratkin
21-12-2007, 07:35 PM
David Dreman - Contrarian investment strategies , the next generation argues that the pro investment gurus and brokers etc really dont have much of a clue , they tend to be swept along and over optimistic.
Dreman says a selection of out of favour low p/e stocks will beat them everytime.
He even goes as far as to say that you would do better if you bought brokers avoid recommendations than the buy ones.

I was reminded of this when flicking through junes smart investor magazine. Page 34 interview with Roger Montgomery , professional investor. Here is what he had to say of his firms portfolio

" Our portfolios typically hold eight to fifteen stocks , and 40% of our portfolios would be in two companies The reject shop and Credit corp
That sounds like a risky thing to do , but its not risky of you understand the buisness and can value it...... If you know the buisness really well , you can follow Mark Twains advice , which was to put all your eggs in one basket and watch the basket"

Had to laugh when i read this , wasnt only Carmel who was taken in by credit corp. i was actually looking through this years magazines to see what they had to say about centro , found many bloopers on many stocks that have already behaved opposite to the way the so called experts predicted.

Guess the moral of the tale is that its better to buy something totally unloved , as Dreman rightly points out though , this is very hard to do.
Topped up on GTP today ( i know , you all think it rubbish !!!!!!! )

ratkin
21-12-2007, 07:36 PM
Look at the annual competitions run on this site. The popular stocks usually do very poorly. This is because everyone likes them and already owns them. So chances are the only way they will go is down

FarmerGeorge
21-12-2007, 10:10 PM
Try the book 'fooled by randomness' it's a good read and has a few interesting observations of investing, but particularly trading, and how much of a part random behaviour may actually play in performances even over five or ten years (which most people seem to regard as 'long term'). After reading it I am now one of the biggest sceptics of any 'pro' out there trying to give me advice.

AMR
21-12-2007, 11:16 PM
I'm not too familiar with how they do valuations but I believe they base it around DCF analysis making many (possibly erroneous) assumptions in the process. In short, their guess is as clueless as ours.

There was a certain diagram in Encyclopedia of Chart patterns which shows the effect of broker upgrades and downgrades on the share movements of a stock. There was absolutely none.

ratkin
22-12-2007, 05:00 AM
Problem is they tend to rate all their stocks based on future earnings, often years into the future.
The economic uncertainties that exist make this nothing more than a guess , and thats assuming the company has been honest with its accounting and predictions.

KiwiBear
22-12-2007, 06:44 AM
I whole heartedly agree with Ratkin! Its been my learnt ways over the years, treat brokers like salesman. They are only trYing to ramp stocks and IPO's that no professional wants to buy.

All the offers IPO's that my broker has sent me have tanked, all the stagable flyers havn't been sent to me.

In the early years went to many seminars held by investment gurus, soon learnt to sell or keep out of whatever the were pushing, even property.

DEFINATELY A SUBSCRIBER TO THE CONTRARIAN PRINCIPLE!

POSSUM THE CAT
22-12-2007, 08:04 AM
At the best they only have a 50% chance of being right

yogi-in-oz
22-12-2007, 11:07 AM
David Dreman - Contrarian investment strategies , the next generation argues that the pro investment gurus and brokers etc really dont have much of a clue , they tend to be swept along and over optimistic.
Dreman says a selection of out of favour low p/e stocks will beat them everytime.
He even goes as far as to say that you would do better if you bought brokers avoid recommendations than the buy ones.



... yes, Dreman's work is good and another good read is:

"Contrarian Investing" ... Anthony M Gallea

have a great weekend

paul

P.S. ..... on the watchlist for this week: BPT - RRS - CUE

:)

jackt
26-12-2007, 02:22 PM
There are fund managers and fund managers. So are they all bad? Including those who manage multi-$B's industry and private superannuation funds? Nevermind that the superfunds have brought in double digit returns for the last 3 years.

If all professionals are bad, then who is actually maintaining and contributing to increase the world wide pool of invaluable investment skills and knowledge? Small time investors who are not trained to analyse and develop technical financial information?

If these small time investors are given access to $B's of superannuation funds, how would they have performed in comparison? What would have been their effective strategies? Having replaced all the professionals with honest hardworking amateurs, there wouldn't be a contrarian approach anymore, would there? But who would trust this new breed with all that money in the first place? It's like trusting a new age alternate health therapist to operate on your brain tumour or heart by-pass. Or like trusting a group of inexperienced wannabe politicians and believing that they are fit to replace the Labour/Liberal/National party to run the country.

I'm sure people such as Bill Gates, Warren Buffett, James Packer, Li Ka Sheng and Rupert Murdoch happily recruit professionals to look after their tremendous wealth. Are they all gullible folks then? Besides, I believe Warren Buffett would consider himself to be a professional.

Well, if the rewards of gullibility is to be one of the richest people in the world, then I'm in!

peat
27-12-2007, 07:11 AM
With the easy availability of leveraged trading you've gotta ask the question : If someone can trade profitably then why do they need to sell their (supposed) skill to someone else?
Just dooooo eeeet (for yourself)

jackt
27-12-2007, 06:23 PM
Hi Peat. I suppose these professional traders may have a few balls up in the air, such as:

1. Profiting from their knack in investment trading either as a hobby or as a main income source;
2. Diversifying their income stream by including fee income 'cos there's no guarantee that investment trading will always give good returns;
3. Developing their professional trading business with a view to an eventual IPO;
4. Just having a passion for big time trade but their personal financial resources are not big enough;
5. Using investment trading as a platform to enter the exclusive circle of high finance movers and shakers;
6. Other unknown motives.

Deev8
28-12-2007, 05:52 PM
David Dreman - Contrarian investment strategies , the next generation argues that the pro investment gurus and brokers etc really dont have much of a clue , they tend to be swept along and over optimistic.
Dreman says a selection of out of favour low p/e stocks will beat them everytime.If you like David Dreman's work you might want to look for his new book Contrarian Investment Strategies: The New Psychological Breakthrough which is due out any time now.

STRAT
28-12-2007, 06:13 PM
There are fund managers and fund managers. So are they all bad? Including those who manage multi-$B's industry and private superannuation funds? Nevermind that the superfunds have brought in double digit returns for the last 3 years.

If all professionals are bad, then who is actually maintaining and contributing to increase the world wide pool of invaluable investment skills and knowledge? Small time investors who are not trained to analyse and develop technical financial information?

If these small time investors are given access to $B's of superannuation funds, how would they have performed in comparison? What would have been their effective strategies? Having replaced all the professionals with honest hardworking amateurs, there wouldn't be a contrarian approach anymore, would there? But who would trust this new breed with all that money in the first place? It's like trusting a new age alternate health therapist to operate on your brain tumour or heart by-pass. Or like trusting a group of inexperienced wannabe politicians and believing that they are fit to replace the Labour/Liberal/National party to run the country.

I'm sure people such as Bill Gates, Warren Buffett, James Packer, Li Ka Sheng and Rupert Murdoch happily recruit professionals to look after their tremendous wealth. Are they all gullible folks then? Besides, I believe Warren Buffett would consider himself to be a professional.

Well, if the rewards of gullibility is to be one of the richest people in the world, then I'm in!Good argument JackT.;) Worth considering is the time invested in DIY. Its fun for me and I enjoy it but with a pocket money portfolio its fair to say the time may be better invested in other things. Most people here are DIY otherwise I assume they wouldnt bother to log on in the first place. I wonder how many if they looked hard at how much of their time they invest in trading/investing are doing as well as they think compared to leaving the funds with a manager and investing their time in other projects?

ratkin
28-12-2007, 06:57 PM
Good argument JackT.;) Worth considering is the time invested in DIY. Its fun for me and I enjoy it but with a pocket money portfolio its fair to say the time may be better invested in other things. Most people here are DIY otherwise I assume they wouldnt bother to log on in the first place. I wonder how many if they looked hard at how much of their time they invest in trading/investing are doing as well as they think compared to leaving the funds with a manager and investing their time in other projects?

Most of us who frequent these forums have probably turned investing into a hobby and as such the time spent should be considered recreation in the same way as stamp collecting or train spotting.

Then there are the full time traders to whom it is a job.

I belong to the first group. My addiction to stocks has served me well over the years. All my spare money has been plowed in for the last fifteen years.
Im lucky in that i generate cash elsewhere and am able to add to my stocks on a weekly basis. I rarely sell anything , i confess i am addicted to it. It not a bad addiction though , i have built up considerable sized portfolio .

Im very tight with my money , for example i drive a beaten up old car , simply because the thought of a new one depreciating in value puts me off buying a decent one.

I have never forgotton a chart comparison i saw in a book once .
One chart showed someone spending 5000 on a new car and the value of it over next 10 years.
The other chart showed someone cycling to work and buying 5000 worth of ford shares and the value of those over the next ten years.

I have never forgotton that

STRAT
28-12-2007, 11:41 PM
Hi Ratkin, For me its fast becoming an addictive hobby too but not so addictive that I drive a bomb :D Youre a long time dead mate and when you are dead and gone you can be sure your kids will be spending it on that sort of stuff:eek:

Financially dependant
29-12-2007, 09:35 AM
I have never forgotten a statement by an adviser on the Money TV program a few years back:

"Buy the cheapest, most reliable car your ego will allow!"

I have struggled with it ever since.

jackt
29-12-2007, 02:41 PM
I agree with you, Strat. I've seen and also heard again and again the same old same old. Parents work hard, struggle to amass a fortune, continue to scrimp and save for the rest of their lives eventhough they don't have to do that anymore. Then when they finally go, their kids, nephews, nieces, etc. get their hot little hands on the wealth. And it's party time for the young ones. Like, what the??

My parents, uncles and aunts are pretty much the same. Not that my extended family is anywhere near amassing even a small fortune. But my siblings, cousins and I can afford to spend a bit now and then, having passed the generational poverty barrier (much thanks to educational opportunities). So we tell the old folks to live it up a little 'cos they ain't gonna live forever. But no, it's their frugal habits that live on. So, they still retain their dreams of handing down to the next generation the humble family house and the few pieces of various family possessions.

How to tell them that this is the 21st century? The world is changing so fast right before their eyes, but I wonder if they see all that. Oh well, as long as they're happy with their lot in life, I guess that's what matters.