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  1. #51
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    Thanks for all the replies, very helpful advice. ENP off to the library to get your recommended books. But ENP there are full time analysts out there, how could I have more insight than them. Oldrider and percy thanks for the vote of confidence. Lizard your comments are useful. RRR I have read the article. Retire is the wrong word, we get to a stage or age where we can make lifestyle choices. Go part time or try something else and if it fails there is no great loss. Without savings one has few options. My father just finished working full time at 85. He lived to work and now is very restless. Coming back to portfolio construction the exchange rate has now given us a great opportunity to diversify overseas with a lot less exchange risk.

  2. #52
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    Quote Originally Posted by voltage View Post
    But ENP there are full time analysts out there, how could I have more insight than them.
    Know a lot about a little.

    Your competitive advantage over these guys is that they have to monitor thousands of companies to find places to put their millions of their clients funds. You on the other hand, can act quickly if one of the several companies you are watching very closely has some beneficial improvements to their business that no one else has picked up on until it's too late.

    I wouldn't have the faintest clue what the entire NZX 50 companies are doing. However, I have a pretty good idea, more than most about what is happening in my 3 favorite companies. That is my competitive advantage over the fund managers. I look at 3 companies very very closely, they look at 50+ with a quick glance.

  3. #53
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    Voltage i think The Pie fund may be a good fit . Australasian companies with great returns ,but maybe not conservative enough for you, have a look ,cheers.

  4. #54
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    Thanks Joshuatree, their performance has been good, not a fan of unit trusts, prefer listed trusts. Maybe good to have a small part of portfolio in this area.

  5. #55
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    Quote Originally Posted by Lizard View Post
    So, as I read that, you want a strategy that stands a good chance of delivering an 8.4% net return per annum or equivalent to about 12.0% if it was all in the form of taxable income at an average 30% tax rate.
    Snap. This pretty much mirrors the kind of returns I set out to achieve.

    Probably realistic to look at a portfolio that produces about 5% gross from interest/dividends and 5% capital gain (presumed untaxed).
    I am not sure if it is just an aberration. But I have found that investing for a high dividend yield over the last business cycle on the NZX has also provided superior capital growth to the sub set of shares that I had ostensibly ring fenced as high growth/ low income shares.

    I have had management of a portfolio that was structured to achieve this exact return since 2002. The initial split requested by the 70 yr old investor was, 15% cash/term deposits, 20% debentures, 10% mortgages, 15% property trusts, 15% other NZ shares, 15% Australian shares and 10% overseas shares. The "mortgages" part pretty quickly morphed into bonds and grew to 15%, while debentures were eventually mostly replaced with term deposits (though still took a few hits). The portfolio gets rebalanced on a 3 month cycle.
    That sounds like a fairly sophisticated 70 year old investor to me. If all 70 year old investors were that sophisticated there would have been a lot less hardship over the last investment business cycle.

    If you take 'conventional investment theory', 'the average investor' should have 1/3 of their wealth in property, 1/3 of their wealth in fixed interest and 1/3 in the sharemarket. You didn't mention it Lizard, but presumably this 70 year old had some equity in their own house? Although not strictly an 'investment', because everyone needs to live somewhere, I would argue that leaving your own property out of your investment portfolio will cause you to underestimate the property effect on your wealth.

    For this reason my own investment in property over the years (outside of my own house) has been minimal, and is currently nil.

    When reorganizing my own financial affairs a few years ago, along an equal property/fixed interest/shares split, I was struck by my ability to buy both 'leading shares' and 'bonds in leading share companies' at very similar yields. The theory was that buying say Contact Energy Bonds yielding 5% and Contact Energy shares yielding 5% at the same time would be diversifying my portfolio. This seemed to me to be a ridiculous assessment. Because if Contact Energy got into trouble, clearly both the shares and the security of the bonds would be affected. So I made the decision to close down all of my bond and finance company investments and put all that money into equivalent high yielding shares. That way I maintained my income and had some possibility of capital gain. The alternative of maintaining my fixed interest portfolio was that I retained the downside risk of losing my capital but gave away any counter upside capital risk from my investments. As a consequence of that decision the almost complete collapse of the non bank finance company sector had no effect on my investment portfolio.

    I do still have a (smaller than conventionally suggested) fixed interest portfolio, made up of both term and cash deposits. But it is now entirely with significant banks.

    The individual categories are split into 6-9 individual holdings.
    And here lies the rub. Nine holdings in the NZX, when the NZX represents 15% of a portfolio means that that each holding represents about 2% of the total portfolio. You may sleep well in your bed Lizard. But you could also be be dead in your bed for quite a few years before your overall managed portfolio would even notice. Even if you have a windfall with one of your NZX shares goes up by 100%, your overall portfolio return for one year goes up by a one off 2%. Whoopy do! Would it make that much of a difference if you just threw the whole lot into something like TENZ, and cut out the management worry?

    Having said that my own NZX shareholding management is not so different. I currently have nine NZX holdings. These are nominally equal, although not in practice. I use the same reapportioning rules as you. I sell down when a share reaches 'double weighting', and buy more when one declines to 'half weighting'. But because I axed my debenture/fixed interest/bond portfolio my NZX shares make up a far greater slice of my wealth than before. So any return outperformance I make is significant (as is any loss, but I have a different strategy to minimise that).

    I would also probably prefer to work with fewer holdings just to minimise the paper shuffling.
    I would agree, because of the situation I have outlined above.

    I'm expecting this post to be followed by a torrent of posts explaining how you could make much, much better returns using other strategies. They may well be correct. However, I just thought it might be of interest to demonstrate a fairly mechanical, low risk strategy that has achieved the returns you're looking for.
    There are all sorts of strategies that make far better returns than yours Lizard, as long as the market keeps going up. Long term, because of the multiplicative effect of cumulative earnings in subsequent years, almost none of these 'superior methods' are even survivable in portfolio terms. I think you are on the right track.

    SNOOPY
    Last edited by Snoopy; 18-07-2011 at 11:02 AM.
    Watch out for the most persistent and dangerous version of Covid-19: B.S.24/7

  6. #56
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    Thanks Snoopy. I found your comments interesting.

    Yes, it did occur to me that if I wasn't interested at all in following the sharemarket, I would probably choose to split the shareholdings across a selection of managed funds. Then again, I got into sharemarket investing because I was grumpy at the returns on various funds I'd invested in, so I am not that sure I would go back to them easily for myself and therefore just as easy to invest other people's money there too.

  7. #57
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    I have found the posts of Lizard and Snoopy interesting, got me enthused
    enough to look at my own figures for comparisons.Some of their thoughts
    echo my own as portfolio shows I think.

    I retired in my 60's over 10 year ago so am roughly the same age as Lizards investor.
    Breakdown of present portfolio:
    Cash: 2.00%
    Term Deposits: 7.25%
    Bonds: 4.00%
    NZ Shares: 6.75%
    Aust Shares 38.00%
    Foreign Shares: 14.00%
    NZ Property: 25.50% includes our residence
    Foreign Property 2.50%

    Average dividend return 4.61% after removing value of house
    Highest 5.66% 2006 Lowest 4.06% 2005
    Average growth 9.23% after removing value of house
    Highest 32.24% 2004 Lowest -32.34 2009

    All data in NZ dollars. All told not too far distant from target others have though exchange gains have helped
    over the last year or two but are going the other way now.

  8. #58
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    Snoopy out of interest have you compared your portfolio to TENZ to see if you have outperformed? Your focus on dividend yield is interesting, is it dividend growth that has driven your portfolio. I get these emails from http://www.early-retirement-investor.com/index.html and they focus on the dividend players for their portfolio. They use the high yielders like VOD, AV SSE, TESCO, PSON, NG, BAT

  9. #59
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    Quote Originally Posted by voltage View Post
    Snoopy out of interest have you compared your portfolio to TENZ to see if you have outperformed?
    I mentioned TENZ as a proxy for a low cost NZX fund that roughly follows the index. I don't have an historical record of the dividend payments for TENZ, because I do not hold. However, the NZX50 which does have dividend payments included is a statistic that is readily available. Prior to this financial year (I calculate my returns on the tax year ended 31st March) I had outperformed the NZX50 by eight percentage points per year over the last five years. I suspect the NZX50 has outperformed TENZ over that time. So I am fairly sure my outperformance of TENZ has been significant over that period.

    The five years before that I think I underperformed the NZX50 by a point or two per year during the best years of the new century bull market. However I was not disappointed by that because I was using a value investment type approach. And this is what the textbooks lead me to expect would happen if I didn't go out chasing growth. Finally underperforming during the bull market run by a point or two equated to still quite a respectable net return by historical average standards.

    Your focus on dividend yield is interesting, is it dividend growth that has driven your portfolio.
    Because my NZX investment portfolio is not what I consider well diversified (only nine shares), I would have to say that it is the capital performance of one share, Restaurant Brands that has driven my portfolio with Turner's Auctions bumper dividends playing a mentionable supporting role. Plus not having any real investment disasters to drag down my good work was useful!

    SNOOPY
    Watch out for the most persistent and dangerous version of Covid-19: B.S.24/7

  10. #60
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    Hi SD
    So over the last 10 years what percentage of your portfolio's performance has come from dividends with and without RBD?
    h2

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