What are your Investment Rules?

[kiora]

Lessons from commodity markets.The market is often smarter than you.

"Overall, this current cocoa episode is a great example of why trading commodities is so difficult to get right, even for an industry expert. The huge but unpredictable moves can make you a hero or a zero as Jesse Livermore knew all too well."
https://www.goodreturns.co.nz/articl...or+25+Mar+2024

[kiora]

"The “wait till the coast is clear” approach is the most pervasive, wealth destroying, unshakeable investor mindset I see. And there is no better example than the past 12 months."
https://www.livewiremarkets.com/wire...THE%20INSIGHTS

[kiora]

"It's well-known that founder-led companies outperform those led by hired suits. In fact, in 2016, Bain & Company found that founder-led companies listed on the S&P 500 performed 3.1 times better than their peers over a 15-year period (see below)."
https://www.livewiremarkets.com/wire...AD%20%20LISTEN

[kiora]

A cluttered article ? but worth taking on board
"5 Steps to Spring-Cleaning Your Investment Portfolio
Portfolios can get unwieldy. Here’s how to reduce some clutter."
https://www.morningstar.com/portfoli...ment-portfolio

[Snoopy]

A cluttered article ? but worth taking on board
"5 Steps to Spring-Cleaning Your Investment Portfolio
Portfolios can get unwieldy. Here’s how to reduce some clutter."
https://www.morningstar.com/portfoli...ment-portfolio

Interesting article in principle. I twigged about half way through that it was US focussed. I thought, thank goodness I don't live there as it seems every job you have is hooked up to a different superannuation scheme, leaving people with a real hotch potch of retirement schemes come retirement day! Our kiwisaver system seems so much more sensible. I have a few overseas investments that I don't actively manage, mainly to provide exposure to sectors not available on the NZX.

On the NZX I run a twelve share portfolio, which I see as a six share portfolio with each of the six having an 'investment pairing'. The reason I have settled for 12 (or is that 6) is that if you get to much more than that, then you are starting to create your own index fund. And if you do that, why not just buy an index fund? But if you have less than six (or is it twelve) shares, then I think you can become tunnel visioned and not see the wider picture that having even two shares in the same category can give you. I know that for me, there would be too much temptation to look at ticker prices knowing every cent movement in the price of each of your shares makes such an overall difference to your portfolio. As it is now, I feel quite happy not to look at my share portfolio for a month or so, if I have 'travel plans'.

I don't regard dealing with my investments as a chore. In fact I really enjoy it. So far the 'extra paperwork' hasn't proved a problem for me. My actual NZX portfolio consists of:

Finance: HGH and TRA
Energy: CEN and MCY
Telecommunications: SPK and CNU
Manufacturing: SCT and SKL
Retailing: PGW and RBD (and TRA?, kind of 'double counting' here)
Tourism: SKC
Services Sector: AGL

As you can see some of my 'pairing' gets a bit tenuous at the bottom of my list. The last two are not even paired! I am stretching that definition of retailing quite far when I have PGG Wrightson and Restaurant Brands in the same bracket too. I figured I had to get into tourism when it was NZ's biggest sector. I used to hold AIR, but bailed at a loss, way back when the Helen Clark government had to step in. Looking backwards I should have got into AIA back in the early days. But it always seemed so expensive! I have sniffed around getting into hotels, but I couldn't make the investment case stack up against the likes SKC (which I realise does run hotels as well). Of course all of this was before SKC ran into its ahem 'issues'. My diversification into the service sector has turned into a bit of a disaster. Fortunately it is only a small piece of my portfolio (or it is now !). It went well for a time though.

I have had a few ups and downs over the years. Thankfully more of the former with my massively overweight position in RBD some years ago before the partial takeover offer being the game changer that has really 'set me up'. Just as well I don't strictly follow a percentage allocation rule in my portfolio or that would not have happened! But my general goal is to try and equalise the size of my twelve positions. I have not been very successful at this because my largest position is something like eight times the size of my smallest. But there we go.

I have had the odd dabble in bonds over the years, but have not 'found the love' in that sector. Even recently, just when I thought I had found a bond investment that was worth getting into, I found a share investment that was better. Plus of course you have the nightmarish income tax calculations that occur if you buy a bond 'on market'. I don't think I will ever be a bond investor. Those bank term deposits are so much easier to manage and ostensibly safer. If I want a higher return I go straight to equities.

Another plan I had was to 'spring clean' my preferred twelve once a year, with the one showing the least promise exiting. That hasn't really happened, mainly because I am quite careful with my selections in the first instance, and it is often too much work to find a suitable replacement. But the idea is there at least, so I am not wedded to my current portfolio 'forever'.

There is my own 'portfolio simplifying strategy' to share.

SNOOPY

[kiora]

Thanks Snoopy
I've paired my investments back & simplified by having 70% of my portfolio in 3 Pie Investment Entities investing in the Australasian markets with 100% equities.


"Investing in a PIE can minimise tax administration for you and Inland Revenue.

If you’re an individual and you give us your IRD number and correct PIR, a PIE pays a final tax on your returns. This means there is no further tax to pay on your PIE returns and you do not need to include your PIE returns in your tax return (if you have to do one).

For individuals, if your PIR was not correct during the tax year, Inland Revenue will complete an end of year wash-up following the end of the tax year. This may mean you have further tax to pay (capped at maximum tax rate of 28%) if your PIR was too low, or you may receive a tax refund if your PIR was too high.

If a trust notifies a PIR of 28%, PIE returns are treated as excluded income and these also do not need to be included in the trust’s or its beneficiaries’ tax returns."

Plus 30% of portfolio invested directly in NZ shares.Specifically 80% IFT,20% FPH

Its as diversified as I want to be & a far simpler tax return than I used to have & very happy with returns last FY:25%

Interestingly my son, entirely indepently of me,invested in a S&P 500 index fund & more than likely outperforming my direct share portfolio.Go figure,he's the smarter one ?

[Snoopy]

Hi kiora,

Yes I understand the tax time advantage of PIEs. I was surprised to find in my deep dive into property PIEs over the last twelve months that you can even get a credit on 'tax' than no-one has paid! But, by the same token, I think an investment must stand up on its own merits. Investing in something just because it is tax advantageous to do so, is, I think foolish. And I say that from experience. Back in the day, you used to be able to get out of paying tax on dividends by taking up a DRP. I ended up buying a lot of overpriced small parcels of shares by taking that route! If only I had just paid the tax!

Changing tangent, I am currently involved in managing an Investment trust fund for some underage beneficiaries, and that is investing wholly in PIEs which makes tax time much easier.

SNOOPY

[Snoopy]

A cluttered article ? but worth taking on board
"5 Steps to Spring-Cleaning Your Investment Portfolio
Portfolios can get unwieldy. Here’s how to reduce some clutter."
https://www.morningstar.com/portfoli...ment-portfolio

Some more comments on why I don't get the concept of institutional portfolio management.

"Another broad category to consider cutting—and I know many of you are individual stock enthusiasts, but if you’re someone who has not found a lot of time to oversee an individual stock portfolio, you might consider cutting there as well and throwing the money behind a broad market index fund or an exchange-traded fund. If you’re an enthusiast, by all means, continue, keep going. But potentially reduce your number of individual stock holdings into your higher-conviction positions. Commodities and gold, as we showed on the previous slide, they actually look better than a lot of other categories when it comes to adding diversification to a portfolio. But at the end of the day, they don’t look better than plain-vanilla cash and Treasuries. So, if you’re reducing the number of moving parts in your portfolio, those would potentially be candidates to consider as well."

This whole idea of diversifying into other investment categories uncorrelated with the stock market gets my goat. I have no idea what the value of my overall share portfolio is, and frankly, I don't care. OTOH I do have a very close handle on what the income from my shares is. And I know it is a lot more than if I had put that same money into bank term deposits. So why would I want to 'diversify' into earning less income by putting money into commodities and treasury bonds? To reduce my income and the volatility in the capital value of my share portfolio that I don't care about? That makes no sense to me at all. If I wanted to cash out my investments in the foreseeable future to buy a house, then that would be different. But honestly, I have zero interest in reducing the volatility of the capital value of what I own. I just want the best return I can get, and to hell with any bumps in the road on the way.

I will not be looking to channel my share investment towards my higher conviction positions either. That is mainly because I could be wrong in my high conviction thoughts (but I do allow my higher conviction positions to run) . Plus, because I don't have an alternative asset allocation into bonds commodities or property, I can't really afford to put everything on one or two horses in case the jockey(s) fall off. But walking back on my risk position, I have no interest in the high flying trendy shares either. If they don't pay a dividend, then I don't even consider them as an investment prospect. So overall I think my total investment portfolio is no riskier that someone with an S&P 500 tracker and a bond allocation.

I do have an allocation for cash. But that is not to 'smooth my portfolio'. It is there for investment opportunities that come up.

The overall theme of the article is to whack everything into US based index funds. Good for some, but not for me.

SNOOPY

[kiora]

""The value of admitting you are wrong is probably higher than the value of actually being right." "

[kiora]

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 believe that AI can be beneficial. I also agree with many of the experts I have consulted that AI is a major revolution, like the invention of the printing press, beyond the significance of the development of the internet, and that this is, indeed, the second machine revolution (the first was the Industrial Revolution)."

https://garciamedia.com/blog/the-new...k-fun-lessons/