Halebop-investment strategy

[KJ]

Halebop-from the RBD thread I was impressed with your returns over the last 2 yrs-I thought that I had done well but nothing like your success-137% and 96%.

Like most I am keen to do better and will try to learn from you.My primary focus is on FA but have added some TA basics over the last yr.(thanks to Phaedrus and others)

I note that your portfolio normally only consists of only 1-3 coys and you currently have none.I agree with you on the fact that money is made when you buy and that this area is crucial.

With this in mind I am interested that you have not bought into any coys during thr recent downturn.What would your thoughts have been on say FBU at $6.00 or NPX at $3.30-$3.40 recently as these would seem to be sound undervalued coys at these levels.

Given your success I am interested in your thoughts.

[Halebop]

Hi KJ,

Various companies do look good and in fact they (NPX, FBU) are two in particular I have looked closely at. Personally I prefer Australian companies for liquidity although this normally isn't an issue with your two suggestions. On a subjective level I'm nervous about property and construction markets which precludes both those companies. This isn't to say they will be bad investments (I think FBU in particular could be very good) but I'm unsure how to value them versus the structural risks they face. Uncertainty is not something I will invest in although I'm willing to trade it at times.

My "investment" portfolio normally only consists of 0 to 3 companies. Often my trading portfolio contains anything from 0 to 10 shares as well. These "trading" shares are companies with less certain fundamentals but strong technicals and the intention is to buy and sell on technicals - normally but not always over a shorter time frame.

The investment side of the porfolio is small in number because its hard to satisfy all the tenets, valuation criteria and trending data. However, despite Snoopy's doomsaying, they always pop up a few times a year. It just requires patience and the balls to act (the tide always turns at the lowest ebb). When they present themselves I buy strongly and they normally end up representing 80 to 100% of my net financial asset worth in just a few shares.

Colorado Group (ASX: CDO) has just popped onto the radar but I'm nervous about the Rivken connection alluded by SEC on the CDO thread and that the current quarter may be weak and present a better buying opportunity next quarter (I was hoping they would fall to $4 and rise from there, maybe allowing me to buy at $4.20 or so but this is perhaps now unlikely). I've bought a small parcel today despite a gut instinct to wait and will continue to slowly buy. CDO is one I feel I can back the truck up to. I have a NPV value of $14.30 based on 10% growth for 10 years with a 5% termination growth rate at a 10% discount rate. They also score highly on the Tenets. For me this puts them at a buy up to $7.15 which should allow a defensive investor to safely and slowly accumulate without being bitten to badly by a backlash to the "Rivken rush", albeit a little frustrating compared to jumping in at $4.60 or $4.80.

Once they are bought I will follow longer term trendlines that Phaedrus is so clear and concise in demonstrating. I used to just sell when they reached my perception of fair value. However, good companies so often get "overpriced" that I got frustrated leaving so much on the table. Technicals rarely get me top dollar but they normally allow me to get more bang for the buck

My favourite share is still MHI but they might take a while to satisfy my desire to buy at half their value or less. I'm resigned to the fact their growth rate may taper in 5 or 10 or 20 years before I ever get to buy them! Having said that, I have their NPV around $11 which is still reasonable value.

[SEC]

Halebop, did you leverage to get those returns?

SEC

[Halebop]

Hi SEC,

I haven't borrowed/owed any money for any investment since some time in 1999 (thanks Dad!) and I don't borrow to invest in listed shares. Just don't have the smarts or the balls.

Would consider borrowing for Real Estate investments but haven't felt so inclined up to now.

[KJ]

Halebop-thanks for your response and explanations.I tend to hold about 10 coys in my LT portfolio so am interested that you go with 1 to 3 only.I think that you do a lot more homework in this area than I do.

Do you do well from trading?-I seem to be similar using TA although I only trade coys that I hold in my LT portfolio on the basis that I know them well.I agree that FBU has been a good coy to trade and have done so several times this yr.

[Halebop]

I do OK from trading but for all the activity it generates the returns often aren't worth the effort versus a simple investment. Its still a worthwhile fallback in absense of any investment alternatives. I earned around a gross 35% or so last year from trading. Numerous buy/sells and various losses included. It was perhaps 90% of my effort for 25% of the net return but was still worthwhile because it beats 4.5% on call.

[Lizard]

Halebop, greatly appreciate your generosity in sharing this stuff. I have a few more questions if you are willing:

a) How do you find "Buffett-style" stocks in NZ? I've found it impossible over the past 5 years, as anything that starts to develop the necessary performance history tends to either get taken over or moved off-shore. On the odd occasion a stock looks close, they either turn out to be a cyclical or are already well over-valued. Other than those already mentioned, are there other NZ stocks which would meet your criteria if they could be bought at the right price?

b) My problem with using NPV analysis has been getting in too early and out too early. As a result, my investments normally do nothing (or go backwards) for the first year, go up by 50-100% in the next two years and then I end up selling out and missing the next 100%. Sounds like you found something similar. But so far my attempts at TA have just made things worse.... When I buy on the uptrend, I just find I bought at the top of a small hump and when I sell the down-trend, it turns out to be a small and temporary dip.... where to start?

c) I'm assuming your results are before tax and include dividends. Do you include any cash set aside for share investing?

Cheers, Liz

[Halebop]

quote:Originally posted by Lizard

Halebop, greatly appreciate your generosity in sharing this stuff. I have a few more questions if you are willing:

Bah, they're just words Lizard. I don't do anything that the reading of a couple of books couldn't emulate. Very few of my ideas are my ideas.

quote:Originally posted by Lizard

a) How do you find "Buffett-style" stocks in NZ? I've found it impossible over the past 5 years, as anything that starts to develop the necessary performance history tends to either get taken over or moved off-shore. On the odd occasion a stock looks close, they either turn out to be a cyclical or are already well over-valued. Other than those already mentioned, are there other NZ stocks which would meet your criteria if they could be bought at the right price?

The answer is "very rarely". But this is the answer in any market. I laugh when I see some fund manager set up and say they will use a "Buffett Style" methodology and you see they own 20 different public companies. It’s an oxymoron. In Buffett terminology you might say the biggest skill is knowing when to be slothful or refusing to "swing at the ball".

The most obvious Buffett deal I've seen in NZ was MHI a couple of years ago. I was still formulating my TA plan back then and refused to buy even though TA screamed DO IT NOW! I seem to recall Phaedrus quite rightly told me off for not buying. Ce la vie. I also thought Pumpkin Patch fitted the mould but without a public company track record I gave them a miss. Same for Freightways although I felt more comfortable with them and actually subscribed during the float. [Disc: Hold none of these companies]

I find Australia just offers more variety and better liquidity to NZ but is still close enough to home to be familiar with legal system, culture, language etc. I occasionally invest in UK and USA but I can palpably sense a lack of understanding nuance on my part.

quote:Originally posted by Lizard

b) My problem with using NPV analysis has been getting in too early and out too early. As a result, my investments normally do nothing (or go backwards) for the first year, go up by 50-100% in the next two years and then I end up selling out and missing the next 100%. Sounds like you found something similar. But so far my attempts at TA have just made things worse.... When I buy on the uptrend, I just find I bought at the top of a small hump and when I sell the down-trend, it turns out to be a small and temporary dip.... where to start?

I am slowly building and maintaining a database of NZ and Australian companies I wouldn't mind owning. This is irrespective of current performance or share market pricing (there may be a single year hiccup that hinder performance but aids valuation, like ALL). I then keep a watch on them to ensure they keep performing operationally and wait until the share price is both cheap enough and trending in the right direction. NPV alone is not enough. All this background activity might still result in not a single buy but I can normally count on 1 or 2 a year. Little investors have one huge advantage over Buffett in that we don't have to move billions to make a measurable impact.

TA needs to follow the longer term trend lines rather than the short term peaks and troughs. Phaedrus I've found is excellent at unemotively displaying these. I find this part the hardest because when I'm actively trading other companies as well I'

[Westie]

quote:I am slowly building and maintaining a database of NZ and Australian companies I wouldn't mind owning. This is irrespective of current performance or share market pricing (there may be a single year hiccup that hinder performance but aids valuation, like ALL)

I like this idea, i've been doing the same. I've found from observation (& some buying) that companies that have good names, brands you are familiar with & seem to be everywhere, tend to bounce back very nicely after going through rough patches. All business go through bad times & have hiccups, but the good names tend to be more resiliant & turn around faster (at least the market pushes their prices up faster). MXG, JHX, FLT, AVJ, BCA. Of course we have been in a very good market lately so i'm not sure if the market will be so forgiving when times aren't so heady. But my reading of some good contrarian books e.g. david dreman: contrarian investing strategies the next generation, suggests that when buying these types of situations you are playing the psychology of the market & the odds always favours the beaten down stocks. Apparently the research shows even bad news can push up the price of out of favour stocks. I guess the key thing here is patience to wait for the hiccup.

One other thought though is that not all recover e.g. HWE & ION. These did have good bounces, but ultimately failed. So while the strategy works, perhaps some diversification or maybe a tight stop loss or tight criteria for selling would be advisable. Better yet would be to work out the common elements in the failures & avoid similar situations. I expect high levels of debt would have been a key factor (stating the obvious perhaps), & perhaps the nature of the businesses, i didn't follow ION but I think HWE's business had lumpy cashflows which made the debt burden hard to bear.

A further thought, anyone know of or use some good stock screeners for the asx & nzx?

[stephen]

I dump out data from IRG's site into a spreadsheet for NZX stocks.

For ASX I go here http://www.ascii-data.com/ and download the CSV they kindly make available.

If you learn how to drive your spreadsheet program well enough that you can set up "filters" on columns, you're home and hosed.

But every now and then, when I'm bored, I go to ASB Securities' site (they have Aspect Huntly data for subscribers) and say to myself "I'm starting with Ts (or As or Ws) today" and just work my way through a bunch of companies. It's interesting to do a compare and contrast exercise, and occasionally you turn up something really worthwhile.

My watchlist on ASB's site is turning into something like Halebop's database of interesting companies. And yeah, it has MHI on it :-)