Pie funds

[Snoopy]

Even if you were in a position to do due diligence (SGH anyone?)

Due diligence is not an automatic step that will approve any investment. You may find that a company fills all legal requirements and is very meticulous about reporting their affairs over several years. Yet all that information might not be enough for someoine such as myself as an investor.

changes in the macro environment are usually unseen, and will impact on a company's prospects regardless of how good management are. Witness collapsing commodity prices (mining services), changes to govt healthcare funding (diagnostic companies), changes to immigration policy (education providers), bank lending decisions (money transfer, payday lending), enviornmental policy (solar providers), tax changes (salary packagers), technology changes (IT providers) - the list goes on and on.

My bold highlighting is important. I would only invest in a company that an idiot can run, because once current management move on you might find that an idiot is running it! The most important thing for the companies I invest in is resilience. Macro events do change (and throw up all sorts of investment opportunities in the process). The real question is does your target investment have the resilience to handle such macro interruptions. If it doesn't, then don't invest in it.

SNOOPY

[Snoopy]

I am not sure if any company is really resilient to macro interruptions. If there are any, they are few and far between. It is far easier to learn when to sell out once a profitable trend is over.

If a say a company is resilient I don't mean it is unaffected by macro events. I mean there is an excellent chance it will bounce back in the medium term. If you know that, then there is no need to sell when the trend is over. Because you know down the track there will be another trend which you can surf and sell out of, if you want to. Just relax! Far better than being glued to your cellphone in a constant degree of nervousness, at the whim of Mr Market.

Yet if the company is resilient, why would you want to sell? I guess to optimise portfolio performance? But even then, there are very few companies that are either 100% bad or 100% good. So all buy sell decisions are really grey, even if you can make up statistics based on moving averages to prove to your self that any buy sell decision is otherwise.

I have a company that I am looking to sell out of soon. It is currently plumbing new market lows. But dividends are good and it is not overvalued. I don't need to add to my 3% cash fund. The company is not overvalued on a fundamental basis. So for the forseeable future I may just keep it.

SNOOPY

[Bilbo]

Well, yes. Isnt that exactly what you are paying an active fund manager to do? If they are doing nothing but buying and holding regardless of performance, then you would be better off in a passive index fund with low fees. I keep saying that buying shares is easy - selling them is the hard part. But knowing when to sell is equally (if not more) important than knowing when and what to buy. If you cant get a handle on it, you will incur capital losses (or will watch your profits disappear) and worse, the opportunity cost of not being invested in something profitable while you are stuck in a dud stock for months/years. If you want to buy and hold you are better off in bigger companies which are more stable, and as Snoopy says, more resilient. Small caps are not resilient - one hiccup and their working capital requirements are buggered, and their share price crashes. One earnings miss and you can kiss goodbye to 20-30% of your capital. So any small cap fund manager should be very active - far more so than if they were managing a mid-cap portfolio. That's the nature of the game.

I think some fund managers think that every small cap they buy is going to turn into a mid cap then a large cap company, so all they have to do is buy it and wait. It doesnt work like that in this space. Very few small cap companies go on to become mid caps, and only a tiny handful become large caps. Most of them simply muddle along with some good years and some bad, and a large percentage disappear altogether.

KW, have you ever invested with PIE?

I have and are very happy with their performance. I don't understand why you are so negative about them or is it just small cap in general that you have an issue with?

My investment horizon is 50+ years, and small cap, early stage and growth stocks make up a small to medium but very important part of my portfolio. They are what have and will continue to provide the outperformance over the longer term. I used to own my own small business which I grew and sold, now I invest some of my savings in other small businesses which I expect to grow and see this as a similar strategy to being an owner of my own business. Part of my exposure to this sector is via PIE because I see them as experts in the sector in NZ/AU and trust their expertise in selecting similar managers for the global fund.

[Bilbo]

Its with active fund managers in general - study after study has proven that the vast majority of them are useless, and all they do is rake in fees for themselves while pretending to be in it for the investors.

And I think the Australian/NZ small cap space is too small for multiple fund managers to play in - it just leads to everyone chasing the same stocks, pushing up the share price to over valued levels, which results in massive losses of capital to investors when the price eventually crashes, and unnecessary volatility in the marketplace. Just think about what happens when 3 or 4 funds all pile into a stock wanting 5-10% positions (they all need large positions in order to make the investment meaningful) then think about what happens when those same funds decide they want to sell. You better hope you beat them to the exit.

It seems like every man and his dog is setting up small cap funds at the moment - and it will be worse once the SIV money starts flowing. Its going to make a high risk sector even riskier.

I've been down the passive route and decided it's not for me although I use ETFs when appropriate. I've never been one to accept being average in any aspect of my life so why would I take the average returns of a passive index approach.

[Snoopy]

Well, yes. Isnt that exactly what you are paying an active fund manager to do? If they are doing nothing but buying and holding regardless of performance, then you would be better off in a passive index fund with low fees.

I would pay a fund manager to execute a strategy. Some strategies underperform during the growth phase and outperform in any subsequent consolidation phase, and outperform overall. Value investment is one such strategy. Following such a strategy will see you underperform the index during boom times. The fact that my own share portfolio underperforms during boom times is not a defect of my strategy. It is exactly what I expect to happen. The fact that I have outperformed the index significantly in down times is also what I expect.

In short, if I follow a strategy that outperforms the index by 4-5 percentage points per year over the long run (many years), then I am satisfied. The fact that I underperfom the index for some periods (maybe even two years) is not even on my radar. I don't care what the index does, because at any time my investment sail boat wil be on a different course, looking for different benchmarks. I have missed every single boom on the market since I can remember. But I have also escaped every bust. And it is actually that last bit that is the key to not blowing all the build up work you have done.

I keep saying that buying shares is easy - selling them is the hard part. But knowing when to sell is equally (if not more) important than knowing when and what to buy. If you cant get a handle on it, you will incur capital losses (or will watch your profits disappear) and worse, the opportunity cost of not being invested in something profitable while you are stuck in a dud stock for months/years.

Sell then, and put your cash in a 3% account. I would rather retain my capital in good dividend paying shares earning twice as much as that and ride out the investment cycle thanks.

If you want to buy and hold you are better off in bigger companies which are more stable, and as Snoopy says, more resilient. Small caps are not resilient - one hiccup and their working capital requirements are buggered, and their share price crashes. One earnings miss and you can kiss goodbye to 20-30% of your capital. So any small cap fund manager should be very active - far more so than if they were managing a mid-cap portfolio. That's the nature of the game.

I think that depends on the definition of small. I would define 'small' in relation to the target market a company operates in. Some small caps could be very predictable if they operate in a clearly defined niche.

I think some fund managers think that every small cap they buy is going to turn into a mid cap then a large cap company, so all they have to do is buy it and wait. It doesnt work like that in this space. Very few small cap companies go on to become mid caps, and only a tiny handful become large caps. Most of them simply muddle along with some good years and some bad, and a large percentage disappear altogether.

Very true. I concur with your broad opinion on 'small caps' and investment funds designed to chase returns from them. The trick of starting several funds in the same space then quietly closing down the non performers while hailing the success of the best that remains because of the fund manager's incredible skill is another trick to watch out for.

SNOOPY

[stoploss]

I'd love to know how Pie managed to get a 50% increase on YTD returns for the Growth Fund in the single month of July (going from 9.9% end of June to 15.1% end of July), considering the performance of the stocks I mentioned. Seems suss to me. Anyone got an explanation?

KW this might answer your question , he mentions holding shorts on the market in this interview ....
http://www.radiolive.co.nz/Mike-Tayl...9/Default.aspx

[Joshuatree]

Mike Taylor in Juno mag today extolling XERO; promoting it heavily without quite recommending it; sounds like he has been hooked by seemingly serial spinmesiter Rod Drury(who is also interviewed) .The mag has been binned.

[stoploss]

Mike Taylor in Juno mag today extolling XERO; promoting it heavily without quite recommending it; sounds like he has been hooked by serial spinmesiter Rod Duke (who is also interviewed) .The mag has been binned.

Rod Duke really ?????

[Joshuatree]

Rod Duke really ?????

Whoops it is of course Rod Drury ;also interviewed at the back, thanks stop loss.. Laying it on thick eh. If PIE have bought in and it looks likely from this article; they will be in the RED today but i guess thats just one point in time.

ps the mag is out of the bin as there are a few decent articles.

[stoploss]

Whoops it is of course Rod Drury ;also interviewed at the back, thanks stop loss.. Laying it on thick eh. If PIE have bought in and it looks likely from this article; they will be in the RED today but i guess thats just one point in time.

ps the mag is out of the bin as there are a few decent articles.

Finally got out of the bunker and found my copy in the mail . A dollar or two in the red won't worry them , they rode TIL all the way down and are looking good now