What are your Investment Rules?

[Snoopy]

My "direct share" investments of two had been keeping up to S&P 500 index up until 6 months ago
Now a gap has really opened up with S&P 500 taking off.
Why? because my "direct share" investments are not exposed enough to Mag 7 ideas? AI?

If we don't take notice we will be left behind?
AI the next revolution?

I was wondering why the massive 12% jump in my Accordant shares on Friday, and now I have found the answer.

From AR2023 p4:
"ChatGPT has clearly brought AI into mainstream focus, and we are active in evaluating the impact on both the labour market and possible applications that exist within our own organisation. In an Accordant first we have developed our own chatbot, designed to process candidate applications faster and drive greater efficiencies."

"All candidates are now able to engage with with AWF 24 hours a day and after an initial discussion with "Frankie" have the option to discuss further with a consultant or they can start the on boarding process on-line."

So there it is. Accordant are the first NZX listed company to put AI to a practical use. Time for you to hop on the bandwagon kiora. I have even produced a slogan for potential new investors.

"Accordant is into AI, Buy buy buy!" (a wonderful bit of assonance there)

Kind of catchy don't you think? What could possibly go wrong? (*)

(*) Actually the answer to that question is 'plenty'. You can start reading about that here:
https://www.sharetrader.co.nz/showth...=1#post1046910

SNOOPY

[kiora]

Thanks Snoopy.
Yes sadly what could go wrong?
I'm not sure about this bit either
"Accordant are the first NZX listed company to put AI to a practical use"

"One NZ Uses Generative AI on AWS to Transform Customer Experience"
https://media.one.nz/gen-ai
It has saved 1,000,000 phone calls to call centers costing $10/call

"AI continued to drive material benefits with an up to seven times lift in performance across areas where it had been deployed, a presentation to be delivered by One NZ CEO Jason Paris said.
Looks like One NZ started using AI towards the end of 2023

“We are now scaling AI across the business to drive cost as well as revenue benefits,” "
https://www.reseller.co.nz/article/1...-fibre-co.html
"One slide also suggested One NZ is planning to establish a separate fibre company to maximise use of its fibre assets.

One NZ is also using regenerative AI to carry out upgrades.Things that used to take weeks now take hours with AI
Self optimising standard AI use
https://businessdesk.co.nz/article/t...38c4-446239310

[kiora]

"INVERT, ALWAYS INVERT!"
"“Invert, always invert!” approach can be
applied generally to problem solving in almost
any field of thought. It seeks to strive for good
judgment mainly by collecting instances of bad
judgment and then thinking of ways to avoid
such situations."
https://www.vltavafund.com/data/dopisy/dopis_80_en.pdf
". If a person
recognises clearly what behaviours should lead
to bad outcomes, and if one succeeds in
avoiding them, then he or she should increase
the likelihood of good outcomes. Probability is
quite sufficient, for certainty is not to be sought
in investing."

[kiora]

[U]Narative versus numbers/Paralysis with analysis[/U]

"Numbers People believe that valuations/ political leanings should be about numbers/ social logic and that narrative is a distraction that brings irrationalities into the investing/ political process. On the other hand, the Narrative People believe that investing/ political decisions are all about great stories and it is the height of hubris to try to depend on numbers/ logic/ science when the future is so uncertain. Hence the former has the fact checkers and the latter has social media manipulators."
https://www.rivervalleyasset.com/the...ic-of-numbers/

"When the narrative is stronger than fundamentals on stock markets"

"Does Narrative Drive the Numbers or do Numbers Drive the Narrative: This is one of the core questions, and you either believe one or the other. A great example of this is again Tesla where the company’s narrative has been so compelling that the market has continuously given it money for the past ten years – Tesla has had ten equity raisings since its IPO ten years ago in 2010. Now the numbers have improved – but without the narrative of the past which lead to these equity raisings, the current business could not have been built. Here clearly the narrative was an important driver of the final numbers."
"The best scenario is the one marked 4 when the company moves from the bottom left quadrant to the top right"

Where the narative is good together with increasing EPS & PE
When the narrative is stronger than fundamentals on stock markets

" A story will always have more impact than a statistic"
"But the reality is that stories are more important than statistics in our decision-making process and, more importantly, they stay with us longer."
"While this premium or discount is largely justified and strongly linked to future growth prospects, it is often amplified by operators due to a lack of visibility on the future.

But most of the time, the market is right"


https://www.marketscreener.com/news/...kets-43888494/

Key takeaways:

Stories have a stronger and more lasting impact on our perception of reality and our decision-making than statistics.
Stories can explain a large portion of stock market fluctuations and their analysis can be used to improve forecasts of future stock market returns.
The stories that work best use reality but distort and amplify it, leading to exaggerated price movements - both up and down - and thus the appearance of market anomalies.
Knowing how the underlying narratives of a market, a theme or a company, both positive and negative, are articulated is therefore essential for positioning a portfolio, especially for large caps and the pharmaceutical and commodity sectors.
Stocks with a high exposure to a market narrative (both positive and negative) are more volatile and their valuation is more likely to deviate from their fundamentals.
There is a momentum effect related to a stock's gain or loss in popularity.
While negative stories may exaggerate the price of stocks exposed to them and sometimes create investment opportunities, each case must be analyzed independently. Be wary of what you think you know about a company; not all information may be in the public domain. And most of the time, the market is right to lose interest in a stock.

[kiora]

"News-powered hedge fund raises $100m to trade on reporters’ scoops"
https://www.afr.com/companies/media-...0240403-p5fh42

[kiora]

Holding Cash In Portfolio
https://www.rbcroyalbank.com/en-ca/m...os-and-cons-2/

All the reasons for holding cash given here & other articles fall flat in my view
1) Liquidity:How liquid does a proportion of the portfolio need to be given that liquidity can be provided by selling shares & money is deposited in the bank in 1-2 days
2)Cash to deploy if an opportunity presents itself.
Why wouldn't the poorest share performers in the portfolio be sold instead?
3)Less volatility in the portfolio because cash doesn't lose its value when markets tank?
I've held investments in FUM with up to 30% cash at times & haven't noticed less volatility in performance

Why would an investor pay an advisor to hold cash?
Wouldn't it be far better to be 100% invested in the best opportunities available?

Real life example as one of the trustees of one of the trusts wanted cash available for a rainy day & took 6 years to convince otherwise.
30% of trust funds were held in a cash account
Returns on investments & cash were 9% compounding over 6 years
Where as if all the funds were invested returns would have been 15 % compounding over 6 years
That was an opportunity lost 6 % compounding
That is disappointing

For an individual my view, if practical, is as I've written before its better to have undrawn OD or Revolving Credit as an "cash account" if practical, secured over property
This only costs around 0.5% or less for unused funds,works out at 0.05% if it's an amount equivalent to 10% of FUM.

[kiora]

"Active versus Passive Investment Management"

Sounds good in theory but in practice?
Some are value adding,some are not.

https://www.goodreturns.co.nz/articl...or+10+Apr+2024

https://www.octagonasset.co.nz/asset...h-Fund-9.0.pdf

[Snoopy]

"Active versus Passive Investment Management"

Sounds good in theory but in practice?
Some are value adding,some are not.

https://www.goodreturns.co.nz/articl...or+10+Apr+2024

https://www.octagonasset.co.nz/asset...h-Fund-9.0.pdf

From the goodreturns link above

---------------------------

Limited detailed market knowledge of an asset.

In the United States, companies can have over 50 broker analysts writing detailed research about them – discussing their prospects, looking at the company accounts and providing views on valuation. In New Zealand, there are some sizeable companies that only have one analyst covering them. The chance of an Octagon analyst or portfolio manager discovering something about a company that allows us to form a different view on valuation to the market is likely to be higher in thinly covered stocks.

-----------------------------

This point resonates with me. I hold Accordant, which has no analyst coverage, and Scott Technology which is only covered by Forsyth Barr because Scott's commissioned and paid for that firm to do so. There are a couple of big downsides investing in a firm with no or doubtfully unbiased analyst coverage.

1/ You have to do all the analyst work yourself, which requires a fair bit of technical skill to accomplish, plus a lot of time.

2/ You will likely find the share very thinly traded. I tend to think in blocks of around $6k, as that was the minimum size of parcel to get over the minimum brokerage fee charge, 'back in the day.' That means that if one investor sold one block of shares in one day, the turnover of that share on the market would be $6k (on most days both SCT and AGL would struggle to reach that level of turnover). That in turn means that if you build up a 'decent size position', and I used to think of that as 'three blocks' or $18k worth in one share, it would take 3 days to exit. Straight away you can see the problem of 'trading' such a share. There is no path to exit quickly at the 'quoted price'. Thus if you own such a share, you have to be prepared to hold through the problem times. It took me a while to get over the fear of being 'locked in' to such positions. I overcame my fear by realising that if the dividend stream was high enough, then there would be no reason to completely sell out. But you could still use the market to tweak your position. The ability to 'look through the short term', is, I believe, an essential psychological asset to have when owning such shares.

Things have worked very well with Scott Technology over the years. Accordant is a bit more troublesome. The dividend stream at Accordant has really fallen away and the share price has come down in sympathy. Still I have a portfolio allocation where even a 'problem child' will never make up more that 1/10th of my portfolio. And if a cash issue is needed for a bail out, I will keep enough cash on hand to support such a thing.

One thing I have found though. All of the truly out size returns I have made on the NZX have been buying shares outside of the NZX50, even if latter success means they ended up in there. So if you have the time, knowledge and the temperament, there is a lot to be said for looking at opportunities outside of 'the index.'

SNOOPY

[Valuegrowth]

Holding Cash In Portfolio
https://www.rbcroyalbank.com/en-ca/m...os-and-cons-2/

All the reasons for holding cash given here & other articles fall flat in my view
1) Liquidity:How liquid does a proportion of the portfolio need to be given that liquidity can be provided by selling shares & money is deposited in the bank in 1-2 days
2)Cash to deploy if an opportunity presents itself.
Why wouldn't the poorest share performers in the portfolio be sold instead?
3)Less volatility in the portfolio because cash doesn't lose its value when markets tank?
I've held investments in FUM with up to 30% cash at times & haven't noticed less volatility in performance

Why would an investor pay an advisor to hold cash?
Wouldn't it be far better to be 100% invested in the best opportunities available?

Real life example as one of the trustees of one of the trusts wanted cash available for a rainy day & took 6 years to convince otherwise.
30% of trust funds were held in a cash account
Returns on investments & cash were 9% compounding over 6 years
Where as if all the funds were invested returns would have been 15 % compounding over 6 years
That was an opportunity lost 6 % compounding
That is disappointing

For an individual my view, if practical, is as I've written before its better to have undrawn OD or Revolving Credit as an "cash account" if practical, secured over property
This only costs around 0.5% or less for unused funds,works out at 0.05% if it's an amount equivalent to 10% of FUM.

Cash in hand means can sleep peacefully. I have read and listened to so many gurus in the past. Not any longer. After making mistakes repeatedly, Now I am very comfortable with keeping some cash for emergencies, to take advantage from investment opportunities coming from fire sales and out of favour areas. Besides It’s not bad to take some profits from over valued stocks and raise cash from stocks which are not going to do well. It is better to have cash than keeping money in a falling asset.


"Pros: Benefits of holding cash

Liquidity: Cash, whether in the form of savings or chequing accounts, money market funds, or short-term deposits gives you ready access when you need it.
Zero risk: Cash comes with no capital risk. If you have $100 today, tomorrow you’ll still have $100. That’s what makes it ideal for an emergency fund or a down payment. It can be a safe haven.
Opportunity: Having cash allows you to take advantage of investment opportunities when you choose. For example, following the big market crashes in 1987, 2000, 2008 and 2020, investors who had cash could purchase assets at greatly reduced prices.
Asset Allocation: Having a cash position in your portfolio can add diversity, and diversification can be key to managing risk."

[kiora]

"The Marcus Today stock market dictionary TRUTH & LIES"

You've probably heard them all before?

https://www.livewiremarkets.com/wire...rm=READ%20MORE