Snoopy cf The Index

[Phaedrus]

These 2 guys could hardly be more different. They disagree on nearly everything. They both appear to be rational, sane, reasonably intelligent people - so how come their investment views are so diametrically opposed? This post is an attempt to find underlying reasons that might help us understand how two such totally different investment styles came about. It is NOT an attempt to prove one approach "right" and the other "wrong". A possible explanation for such fundamental differences is presented.

Snoopy’s posts document his fundamental approach to investing. They emphasize the long-term and usually advocate buying and/or holding specific stocks. Posts advocating selling are rare. He places a very heavy emphasis on dividends. He cares little about general market sentiment and appears to be unconcerned by large drops in the shareprice of stocks that he holds. He has no exit strategy and tells us that he has a 'buy and buy'(rather than ‘buy and hold’)approach. The longer a share continues to underperform, the better it looks to Snoopy - which is why he keeps buying. He can watch a stock he holds halve in value and not turn a hair. His aim is to beat the bank rate.

Phaedrus places heavy emphasis on market sentiment. While he seeks dividend income, he regards capital gain as being more important. He makes strenuous efforts to time entries/exits and limit losses, using an array of technical indicators in an attempt to maximise his investment returns. He avoids underperforming shares, prefering to invest in those that are in uptrends, which he holds only so long as the uptrend continues. Having been badly hurt by market reversals in the past, he is now acutely conscious of the need to closely monitor the market in general and trends in particular. His aim is to beat the Index.

[u]Discussion</u>. We can see from the LPC chart posted by Snoopy on 13/5/06 that he is a surprisingly active buyer. For example, with TEL alone, since his initial purchase, Snoopy has added to his holdings at least nine times. Snoopy tells us that he does not like holding cash, which he sees as risky. Since there is no evidence of any selling, we are forced therefore to conclude that most if not all of this heavy buying activity is funded from income. Snoopy appears to have a fairly regular, fairly substantial income. I suspect that he is also a superannuant.
Phaedrus tells us that his entire income is solely from dividends and capital gains, and that he is too young to get the pension. Could this be the core fundamental reason that lies behind the two very different attitudes? Phaedrus is very tightly focussed on profits because he has to be - they constitute his only income. With a separate income stream, Snoopy perhaps feels that he need not worry about losses. So he doesn’t.

[Mick100]

There's one important difference that you have not mentioned Phaedrus;
Snoopy in an investor while you are a trader
I assume that you pay income tax on your trading profits Phaedrus but I have come to the conclusion that alot of the contributers on this site, who are themselves traders, do not pay their taxes. I have come to this conclusion simply because of the fact that noone ever mentions that at least one third of their profits are going straight to the govt. Investors such as snoopy do not have a tax liability on cap gains from their investing activities - surely this advantage should be taken into account when making comparrisons

Another thing which you allude to in your post is the age and stage in life of the investor/trader. I tend to agree with your assumption that snoopy is 60 plus yrs old.
This goes along way to explain why he is more concerned with income from his investments rather than capital gain. This would also explain why he probably does not sit in front of his computer all day watching every minor movement in share pices like alot of traders appear to do. Some people value a balanced lifestyle more than others and in my opinion alot of traders are no better off, in this regard, than someone woking a 9 to 5 job.

I'm not saying that I agree with the way snoopy approaches investing but I think you should compare apples with apples.
.

[duncan macgregor]

PHAEDRUS, If it were not for people that invest like SNOOPY your system or my system would not work. SNOOPY is convinced that he is right, nothing will change that. I gave him heaps over the years which he takes in a good natured manner. He has a flawed practical outlook that i find hard to understand, coming from a man of his obvious intelligence. I nagged him about RBD for years, but he still buys more. We both told him about TEL but he still will average down.
On top of all that i admire the way he comes out with fundamental analysis with deep insights to companies, and tax positions. I felt like i was the parrot sitting on his shoulder or perhaps the wife back seat driving him. On top of that he is a man that has a good sense of humour, never gets nasty, and gives more than he takes.
I find it difficult to understand his outlook, but respect his right to do it his way. WE ALL LUV YA SNOOPY EVEN ALTHOUGH YOU ARE A BIT OF A WORRY. macdunk

[lanenz]

Another big thing in my view is the time frame. anyone could have made a sizable profit since 2000. I am wondering if Phaedrus was a trader for the last 20 years. If so then he has my fullest admiration if he is able to achieve an 8 or 10% gain on average for that time period. Phaedrus, could you shed some light on how long you have been a trader and what sort of numbers we are talking about? It could also be interesting comparing a proerty investor over the same time period.

However, I think that Phaedrus seems to keep his emotions in check and trust his system and if it works consistently then he must be doing something right.

i agree with the Micksta and we are not comparing apples with apples.

[Westie]

quote:i agree with the Micksta and we are not comparing apples with apples.

I think Phaedrus is aware of that. His post appears to be trying to find out what are the motivations/circumstances behind the investing approaches to determine [u]why</u> the two are not comparable apples, not whether the two can or should be compared.

[Placebo]

The answer is simple. Do you ever see Phaedrus and Snoopy posting at the same time? No. Ever wonder why? It's because they have a Secret

Snoopy and Phaedrus are in fact two sides of the same coin.

They are the same person, arguing with themselves.

And what's more, they are both women, pretending to be men.

[Dimebag]

I think the key difference is focusing on the share price as the unit of return against focusing on the underlying earnings of the company as the unit of return.

A fundamentalist might buy a stock for $1.00 that is earning $0.10 per share. As far as the fundamentalist is concerned, that equates to a 10% return. That return may come in the form of dividends, or a proportion of the profits that is reinvested to increase future corporate profits (which will translate into higher future dividends), but that return is essentially independent of the price.

One who 'buys to keep' doesn't need to worry so much about the resale value of their asset as much as how much ongoing value they can extract from the investment via the underlying profits. It's much like holding a very long-term bond. Interest rates might go up and bond prices fall, but for a long-term owner, at the end of the day, that doesn't change the actual interest dollars that will accrue to the holder.

The very essence of value investing is the notion that an investor ought focus on underlying 'value' rather than price. That is a value investor's point of difference. If one is convinced that the $0.10 will continue to accrue to shareholder pa, a fall to $0.80 or $0.70 really isn't that bigger deal, and is, to the contrary, seen as an opportunity to pick up more shares at a much higher prospective return. $0.10/$0.70 = 14.3% -decidedly more attractive than 10%.

The trader, on the other hand, is solely concerned with price movements as the unit of returns, the underlying profit of the company mererly being one indicator of prospective movements. As such, the resale value is everything. Movements in share price are 'market-to-market' and perceived immediately to be returns/losses attributable to that investment.

Dimebag

[duncan macgregor]

quote:Originally posted by Placebo

The answer is simple. Do you ever see Phaedrus and Snoopy posting at the same time? No. Ever wonder why? It's because they have a Secret

Snoopy and Phaedrus are in fact two sides of the same coin.

They are the same person, arguing with themselves.

And what's more, they are both women, pretending to be men.

PLACEBO, Trust you to work it out. You reckon she is a queer with a split personality. Perhaps snoopy dousnt realize that he sorry she is really PHAEDRUS in drag. macdunk

[Dimebag]

The very essence of value investing is the notion that an investor ought focus on underlying 'value' rather than price. That is a value investor's point of difference. If one is convinced that the $0.10 will continue to accrue to shareholder pa, a fall to $0.80 or $0.70 really isn't that bigger deal, and is, to the contrary, seen as an opportunity to pick up more shares at a much higher prospective return. $0.10/$0.70 = 14.3% -decidedly more attractive than 10%.

Of course, as most fundamentalists quickly learn, things are seldom this straight forward. Shares do, on occasion, fall 30% on no good reason, but more cases than not there are very good fundamental reasons for the shift in sentiment -many of which may not be readily apparent to the small-time punter at the time.

The logic works until you realise that the underlying earnings are now only going to be $0.07. With the stock at $0.70, its then too late to do anything and the money is essentially lost.

This is, unfortunately, what has happened to Snoopy with TEL, WHS, RBD, and others. This is not a criticism. I believe value investing is a fundamentally sound way to invest but it is not an easy discipline - especially in the large-cap domain. You can get absolutely crucified as a value investor if you're wrong, and being wrong isn't that hard.

The discipline relies on supreme self-confidence in one's views, yet the humility and capacity for self-reflection to acknowledge when you have called it wrong and get out. A rare combination of traits indeed.

Dimebag

[Halebop]

...once again people don't get the difference between FA/TA and Trading/Investing. I can use FA to trade or invest, I can use TA to trade or invest. In fact I use both to do both.

There is nothing inherent in TA that means "trading". There is nothing inherent in FA that means "investing". If you are thinking either of these things you are missing out.