What are your Investment Rules?

[SBQ]

Make of this as you will
https://www.tradingview.com/chart/SP...y+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]

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]

"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/wire...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/wire...nt-not-in-tech

[DTC]

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/acti...nical+analysis

Etc…

[Snoopy]

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/acti...nical+analysis

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

[DTC]

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]

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]

"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/t...business-asset

[DTC]

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.
Investing Rules, Asset classes and Strategies.pdf

[kiora]

But why would an investor pay for an advisor to manage a cash holding?