Are the "pros" worth listening to ?

[ratkin]

David Dreman - Contrarian investment strategies , the next generation argues that the pro investment gurus and brokers etc really dont have much of a clue , they tend to be swept along and over optimistic.
Dreman says a selection of out of favour low p/e stocks will beat them everytime.
He even goes as far as to say that you would do better if you bought brokers avoid recommendations than the buy ones.

I was reminded of this when flicking through junes smart investor magazine. Page 34 interview with Roger Montgomery , professional investor. Here is what he had to say of his firms portfolio

" Our portfolios typically hold eight to fifteen stocks , and 40% of our portfolios would be in two companies The reject shop and Credit corp
That sounds like a risky thing to do , but its not risky of you understand the buisness and can value it...... If you know the buisness really well , you can follow Mark Twains advice , which was to put all your eggs in one basket and watch the basket"

Had to laugh when i read this , wasnt only Carmel who was taken in by credit corp. i was actually looking through this years magazines to see what they had to say about centro , found many bloopers on many stocks that have already behaved opposite to the way the so called experts predicted.

Guess the moral of the tale is that its better to buy something totally unloved , as Dreman rightly points out though , this is very hard to do.
Topped up on GTP today ( i know , you all think it rubbish !!!!!!! )

[ratkin]

Look at the annual competitions run on this site. The popular stocks usually do very poorly. This is because everyone likes them and already owns them. So chances are the only way they will go is down

[FarmerGeorge]

Try the book 'fooled by randomness' it's a good read and has a few interesting observations of investing, but particularly trading, and how much of a part random behaviour may actually play in performances even over five or ten years (which most people seem to regard as 'long term'). After reading it I am now one of the biggest sceptics of any 'pro' out there trying to give me advice.

[AMR]

I'm not too familiar with how they do valuations but I believe they base it around DCF analysis making many (possibly erroneous) assumptions in the process. In short, their guess is as clueless as ours.

There was a certain diagram in Encyclopedia of Chart patterns which shows the effect of broker upgrades and downgrades on the share movements of a stock. There was absolutely none.

[ratkin]

Problem is they tend to rate all their stocks based on future earnings, often years into the future.
The economic uncertainties that exist make this nothing more than a guess , and thats assuming the company has been honest with its accounting and predictions.

[KiwiBear]

I whole heartedly agree with Ratkin! Its been my learnt ways over the years, treat brokers like salesman. They are only trYing to ramp stocks and IPO's that no professional wants to buy.

All the offers IPO's that my broker has sent me have tanked, all the stagable flyers havn't been sent to me.

In the early years went to many seminars held by investment gurus, soon learnt to sell or keep out of whatever the were pushing, even property.

DEFINATELY A SUBSCRIBER TO THE CONTRARIAN PRINCIPLE!

[POSSUM THE CAT]

At the best they only have a 50% chance of being right

[yogi-in-oz]

David Dreman - Contrarian investment strategies , the next generation argues that the pro investment gurus and brokers etc really dont have much of a clue , they tend to be swept along and over optimistic.
Dreman says a selection of out of favour low p/e stocks will beat them everytime.
He even goes as far as to say that you would do better if you bought brokers avoid recommendations than the buy ones.

... yes, Dreman's work is good and another good read is:

"Contrarian Investing" ... Anthony M Gallea

have a great weekend

paul

P.S. ..... on the watchlist for this week: BPT - RRS - CUE

[jackt]

There are fund managers and fund managers. So are they all bad? Including those who manage multi-$B's industry and private superannuation funds? Nevermind that the superfunds have brought in double digit returns for the last 3 years.

If all professionals are bad, then who is actually maintaining and contributing to increase the world wide pool of invaluable investment skills and knowledge? Small time investors who are not trained to analyse and develop technical financial information?

If these small time investors are given access to $B's of superannuation funds, how would they have performed in comparison? What would have been their effective strategies? Having replaced all the professionals with honest hardworking amateurs, there wouldn't be a contrarian approach anymore, would there? But who would trust this new breed with all that money in the first place? It's like trusting a new age alternate health therapist to operate on your brain tumour or heart by-pass. Or like trusting a group of inexperienced wannabe politicians and believing that they are fit to replace the Labour/Liberal/National party to run the country.

I'm sure people such as Bill Gates, Warren Buffett, James Packer, Li Ka Sheng and Rupert Murdoch happily recruit professionals to look after their tremendous wealth. Are they all gullible folks then? Besides, I believe Warren Buffett would consider himself to be a professional.

Well, if the rewards of gullibility is to be one of the richest people in the world, then I'm in!

[peat]

With the easy availability of leveraged trading you've gotta ask the question : If someone can trade profitably then why do they need to sell their (supposed) skill to someone else?
Just dooooo eeeet (for yourself)