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Big boy
Posted: 14 April 2018 10:46:33(UTC)

Joined: 20/01/2015(UTC)
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King Lodos;60586 wrote:
I think the strategy would suggest there's no way to know what a trust will do in the future .. But the discount it's on is something you do know.

So even efficient market types (who say there's no reliable way to beat the index) have to concede IT discounts do represent a tradable opportunity – because if the underlying shares are priced correctly, you're simply buying them cheaper than what they're worth.

I don't quite go in for it myself, because I don't think markets are that efficient – e.g. I'd still consider BP or Tesco overvalued on a 20% discount, and Unilever undervalued on a 30% premium


Over many years I have proved that buying the large discount and selling on 15% works. It helps if you have accesses to Professtional Research so that you can understand the true discounts on unquoteds etc. If no stocks to purchase on these terms then markets overvalued and you need to buy Zeros etc. Ideally you should have 50 plus holding which you trade regularly.
It's all about human nature not stats and data which the clever people use.
I appreciate that you will not agree as you take the intellectual route which most other investors use. If you are correct about BP,Tesco and Unlever why has the market not worked it out yet.
King Lodos
Posted: 14 April 2018 14:08:01(UTC)

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I think your approach does work .. It should work – especially academically.

But the edge is the discount – it's 20-30% here and there (minus fund costs), and presumably a few years to mean revert.

I think the market – over 25-odd years – has shown stocks like BP tend to be overvalued, and stocks like Unilever have tended to be undervalued .. The difference between a 6% annual return and an 18% annual return is much greater than you're going to get trading IT discounts
Jim S
Posted: 15 April 2018 13:58:01(UTC)

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King Lodos;60586 wrote:
I think the strategy would suggest there's no way to know what a trust will do in the future .. But the discount it's on is something you do know.

So even efficient market types (who say there's no reliable way to beat the index) have to concede IT discounts do represent a tradable opportunity – because if the underlying shares are priced correctly, you're simply buying them cheaper than what they're worth.

I don't quite go in for it myself, because I don't think markets are that efficient – e.g. I'd still consider BP or Tesco overvalued on a 20% discount, and Unilever undervalued on a 30% premium


KL, that last paragraph may or may not be true, but most investment trusts probably hold at least 30 funds. So if an investment trust is at a discount of 30%, arguably the chances of all the underlying shares being overvalued as in your examples is pretty small.

Another factor is that looking at IT discounts highlights sectors where the market perceives a risk which is not being reflected in underlying share prices. Eg. UK smaller caps, China, India, & Private Equity - investment trusts in these areas are generally at high discounts even when their NAV has grown impressively. So I think it makes a lot of sense to invest in ITs for exposure to these sectors, rather than getting going with OEIC funds or buying shares direct. But in sectors where ITs are generally at premiums, I think OEICs are a safer.

I remember there was some skepticism on this forum when Bigboy proposed ITs on 30%-ish discount make a good potential investment universe, but I've also found this can work quite well. Eg. If I think IMIMobile if fairly valued, then buying GHS (which is around 33% IMIMobile) at 30% discount means I kind of pay full price for IMIMobile while buying everything else GHS holds at 50% NAV discount. Thats some good downside risk protection as long as charges are OK and IT managers are competent.

The main risk is in buying an IT that is discounted for very good reasons, I see 3 main ones - one being over-high annual charges (easier to spot nowadays with kiid docs), another being NAV valuations in fantasyland, another being hopeless portfolio management. So before buying something in the 25-30% discount range, looking out for these is important.

Of course, you always have the risk of buying into a sector thats about to go pear shaped, or a manager who's about to make bad decisions, but this can happen with any investment. Spreading risk by investing broadly can mitigate the first, while reasearching the managers and buying on big discounts can reduce risk from the second.

Having said all that about buying ITs at big discounts, I think limiting your IT investments to only those on big discounts is also unwise. There are some great ITs out there (SMT being the obvious one) where discount/premium is not really that relevant to the buying decision, its more based on faith in its management team.








2 users thanked Jim S for this post.
Big boy on 15/04/2018(UTC), King Lodos on 16/04/2018(UTC)
xcity
Posted: 15 April 2018 16:34:06(UTC)

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Big boy;60600 wrote:
  • It helps if you have accesses to Professtional Research so that you can understand the true discounts on unquoteds etc.
  • you should have 50 plus holding which you trade regularly.

Agreed
The first protects from error due to 'false' valuation
The second gives a profitable strategy rather than just tipping the odds slightly in your favour;
and brings a similarity to Tony's trading strategy.
1 user thanked xcity for this post.
Big boy on 15/04/2018(UTC)
Mr Helpful
Posted: 16 April 2018 10:41:26(UTC)

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Seems fairly quiet this morning.
Added to HINT (Stocks - International Income).
4 users thanked Mr Helpful for this post.
dyfed on 16/04/2018(UTC), Sara G on 16/04/2018(UTC), what me, worry? on 16/04/2018(UTC), c brown on 16/04/2018(UTC)
Sara G
Posted: 16 April 2018 10:51:10(UTC)

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Bought ULVR and ISPY (Cybersecurity etf) and topped up RMMC.

Candidates for further top-ups include FCSS and HVPE.

Considering drip-feeding back into a global tracker in my passive SIPP (had sold out all my regional trackers last year).
8 users thanked Sara G for this post.
Mr Helpful on 16/04/2018(UTC), dyfed on 16/04/2018(UTC), Slacker on 16/04/2018(UTC), Tim D on 16/04/2018(UTC), what me, worry? on 16/04/2018(UTC), c brown on 16/04/2018(UTC), gillyann on 16/04/2018(UTC), Ardeebee on 19/04/2018(UTC)
King Lodos
Posted: 16 April 2018 14:02:19(UTC)

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Jim S;60643 wrote:
KL, that last paragraph may or may not be true, but most investment trusts probably hold at least 30 funds. So if an investment trust is at a discount of 30%, arguably the chances of all the underlying shares being overvalued as in your examples is pretty small.

Another factor is that looking at IT discounts highlights sectors where the market perceives a risk which is not being reflected in underlying share prices. Eg. UK smaller caps, China, India, & Private Equity - investment trusts in these areas are generally at high discounts even when their NAV has grown impressively. So I think it makes a lot of sense to invest in ITs for exposure to these sectors, rather than getting going with OEIC funds or buying shares direct. But in sectors where ITs are generally at premiums, I think OEICs are a safer.

I remember there was some skepticism on this forum when Bigboy proposed ITs on 30%-ish discount make a good potential investment universe, but I've also found this can work quite well. Eg. If I think IMIMobile if fairly valued, then buying GHS (which is around 33% IMIMobile) at 30% discount means I kind of pay full price for IMIMobile while buying everything else GHS holds at 50% NAV discount. Thats some good downside risk protection as long as charges are OK and IT managers are competent.

The main risk is in buying an IT that is discounted for very good reasons, I see 3 main ones - one being over-high annual charges (easier to spot nowadays with kiid docs), another being NAV valuations in fantasyland, another being hopeless portfolio management. So before buying something in the 25-30% discount range, looking out for these is important.

Of course, you always have the risk of buying into a sector thats about to go pear shaped, or a manager who's about to make bad decisions, but this can happen with any investment. Spreading risk by investing broadly can mitigate the first, while reasearching the managers and buying on big discounts can reduce risk from the second.

Having said all that about buying ITs at big discounts, I think limiting your IT investments to only those on big discounts is also unwise. There are some great ITs out there (SMT being the obvious one) where discount/premium is not really that relevant to the buying decision, its more based on faith in its management team.



Well there are definitely reasons it should work .. And one reason I've got a small allocation to Hawksmoor Vanbrugh is that they do an IT discount trading strategy, and seem able to sit higher than the competition in risk/return.

But then the discount isn't without trade-offs .. The biggest for me is that share prices now have two layers of uncertainty (asset prices and trust share prices) – so to an extent you need both to both find fair value .. With things like private equity, most of those trusts still sit at big discounts.

Then fees and gearing costs will act like a hurdle – each year you're waiting for a 20% discount to close, 10% of that might be getting eaten by a 2% OFC .. And we're talking about 30% discounts, but often individual shares in good companies fluctuate that much in a year, and sometimes the valuation difference between sectors or regions can be 100-200% – and those mean revert .. So I don't think it's quite a free lunch – discount trading .. I think it's a trade-off in uncertainty and expenses





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Jim S on 16/04/2018(UTC)
jvl
Posted: 16 April 2018 16:08:43(UTC)

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Jim S;60643 wrote:

I remember there was some skepticism on this forum when Bigboy proposed ITs on 30%-ish discount make a good potential investment universe, but I've also found this can work quite well. Eg. If I think IMIMobile if fairly valued, then buying GHS (which is around 33% IMIMobile) at 30% discount...


You needed that "If" too, I see.

My scepticism was around the charges, spreads and whether you like the underlying holdings.

MNL was a lot more buyable to me on a 20% discount a couple of years back than Hansa at 33%, just looking at the quality of the holdings (subjective, I know, but I felt very comfortable holding them), the lower charges and the spread.

And if you look at the relative performances of those two over that time until now my decision has been justified. MNL performed far better.

How much opportunity cost is big_boy losing waiting for Hansa to get up to 15% discount?

And why are 15% and 30% the magic numbers? (big_boy never explains this)

I sell ITs whose holdings I like when they get overvalued (IIT's premium's ridiculous at the moment) but I don't see why 15% is a magic number. If I'd followed big_boy's advice I'd be a lot poorer. To me, a better measure is whether they're historically cheap or expensive when looking at the discount over a number of years.
2 users thanked jvl for this post.
Jim S on 16/04/2018(UTC), Fell Walker on 17/04/2018(UTC)
Jim S
Posted: 16 April 2018 18:02:56(UTC)

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jvl;60722 wrote:
Jim S;60643 wrote:

I remember there was some skepticism on this forum when Bigboy proposed ITs on 30%-ish discount make a good potential investment universe, but I've also found this can work quite well. Eg. If I think IMIMobile if fairly valued, then buying GHS (which is around 33% IMIMobile) at 30% discount...


You needed that "If" too, I see.

My scepticism was around the charges, spreads and whether you like the underlying holdings.

MNL was a lot more buyable to me on a 20% discount a couple of years back than Hansa at 33%, just looking at the quality of the holdings (subjective, I know, but I felt very comfortable holding them), the lower charges and the spread.

And if you look at the relative performances of those two over that time until now my decision has been justified. MNL performed far better.

How much opportunity cost is big_boy losing waiting for Hansa to get up to 15% discount?

And why are 15% and 30% the magic numbers? (big_boy never explains this)

I sell ITs whose holdings I like when they get overvalued (IIT's premium's ridiculous at the moment) but I don't see why 15% is a magic number. If I'd followed big_boy's advice I'd be a lot poorer. To me, a better measure is whether they're historically cheap or expensive when looking at the discount over a number of years.


Well I vaguely remember the debate at the time, actually I thought it was a useful & instructive debate with good points on both sides.

If Ocean Wilson holdings was an overvalued and not very well run business then because it made up such a big part of the Hansa portfolio, that would have made Hansa's 'real' NAV discount rather less generous than it seemed from the underlying figure. If I had similar worries about IMIMobile, I can tell you I would have avoided GHS!

So another thing I shd have mentioned before is to be extra cautious with ITs which are very focussed on a few key holdings (especiallly small illiquid ones) & look at those closely before jumping in. MNL is a good example where a spread of strong IT megacaps meant you could be confident its NAV discount was accurate. As we learned, 20% discount on FAANGs was a no brainer.

There aren't magic numbers, but I agree with Bigboy that ITs around 30% disc are interesting to keep an eye on. Something else I do occasionally is monitor things like MIGO to see what IT holdings the experts accumulate.
1 user thanked Jim S for this post.
Jon Snow on 16/04/2018(UTC)
geoffrey Walton
Posted: 17 April 2018 15:32:56(UTC)

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Sold Witan, and put 95% into MWY and the othe 5% to top-up LT Global
2 users thanked geoffrey Walton for this post.
Mr Helpful on 19/04/2018(UTC), Ardeebee on 19/04/2018(UTC)
Big boy
Posted: 17 April 2018 16:22:40(UTC)

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Jim S;60729 wrote:
jvl;60722 wrote:
Jim S;60643 wrote:

I remember there was some skepticism on this forum when Bigboy proposed ITs on 30%-ish discount make a good potential investment universe, but I've also found this can work quite well. Eg. If I think IMIMobile if fairly valued, then buying GHS (which is around 33% IMIMobile) at 30% discount...


You needed that "If" too, I see.

My scepticism was around the charges, spreads and whether you like the underlying holdings.

MNL was a lot more buyable to me on a 20% discount a couple of years back than Hansa at 33%, just looking at the quality of the holdings (subjective, I know, but I felt very comfortable holding them), the lower charges and the spread.

And if you look at the relative performances of those two over that time until now my decision has been justified. MNL performed far better.

How much opportunity cost is big_boy losing waiting for Hansa to get up to 15% discount?

And why are 15% and 30% the magic numbers? (big_boy never explains this)

I sell ITs whose holdings I like when they get overvalued (IIT's premium's ridiculous at the moment) but I don't see why 15% is a magic number. If I'd followed big_boy's advice I'd be a lot poorer. To me, a better measure is whether they're historically cheap or expensive when looking at the discount over a number of years.


Well I vaguely remember the debate at the time, actually I thought it was a useful & instructive debate with good points on both sides.

If Ocean Wilson holdings was an overvalued and not very well run business then because it made up such a big part of the Hansa portfolio, that would have made Hansa's 'real' NAV discount rather less generous than it seemed from the underlying figure. If I had similar worries about IMIMobile, I can tell you I would have avoided GHS!

So another thing I shd have mentioned before is to be extra cautious with ITs which are very focussed on a few key holdings (especiallly small illiquid ones) & look at those closely before jumping in. MNL is a good example where a spread of strong IT megacaps meant you could be confident its NAV discount was accurate. As we learned, 20% discount on FAANGs was a no brainer.

There aren't magic numbers, but I agree with Bigboy that ITs around 30% disc are interesting to keep an eye on. Something else I do occasionally is monitor things like MIGO to see what IT holdings the experts accumulate.


I have been very happy with 40% plus over a couple of years from Hansa..... some of their holdings might be overvalued(SFTBY,GOOGL and BRKB etc). Still have a holding but as mentioned before I liquidated a very large holding at Christmas time.
Mr Greenwood (MIGO) knows his onions and I would be very happy for him to manage my money......maybe one of my top Managers. I would rather not Cherrypick but prefer to get in at the ground level rather than paying a premium to the price that Mr Greenwood can buy stock at. Also he could be taking a profit on your back so be carefull.

He has a great ability to add value which most private investors can't match.
2 users thanked Big boy for this post.
Jim S on 17/04/2018(UTC), dlp6666 on 18/04/2018(UTC)
jvl
Posted: 17 April 2018 17:53:14(UTC)

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An acknowledgement of MIGO by big_boy at last!

Basically they do the same discount thing, give you a spread of undervalued ITs, and they don't have wild charges. They don't seem to have Hansa in their top 10 holdings but they do have at least 5-6 trusts there that interested me individually a couple of years ago when I first bought. I topped up recently when they slipped back to a discount.

When I've looked at some of the other 30% discount candidates mentioned (NSI, OAK, GHS, etc) another point is sometimes there are such high annual charges and/or such a wide spread that 30% doesn't seem to be a fair reflection of the discount. A true discount would be much lower and would get worse a lot quicker. If NSI's spread weren't so wide, I'd probably buy it.
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Jim S on 17/04/2018(UTC), dlp6666 on 18/04/2018(UTC)
J Thomas
Posted: 17 April 2018 19:43:38(UTC)

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Yesterday added to:

Shell - growth and quarterly dividend.
Estee Lauder - growth and quarterly dividend.
Amazon - recently oversold growth share.
PayPal - recently oversold growth share.

All showing strong gains today.

This rather reminds me of my similar approach to numismatic trading in antique gold coins.
' Buy only the best of the best, and someone will always shortly offer you more.'
2 users thanked J Thomas for this post.
John Miskelly on 19/04/2018(UTC), Mr Helpful on 19/04/2018(UTC)
Big boy
Posted: 17 April 2018 19:54:53(UTC)

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JVL.........I have acknowledged Nick Greenwood for many decades and am fully aware of his ability.
Mr Helpful
Posted: 19 April 2018 10:30:13(UTC)

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Top-sliced BRCI Commodities Income today.
Still seems good value though.
Big boy
Posted: 19 April 2018 10:43:10(UTC)

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Mr Helpful;60881 wrote:
Top-sliced BRCI Commodities Income today.
Still seems good value though.


If something is "good value" should you be buying it rather than selling.....
5 users thanked Big boy for this post.
Fell Walker on 19/04/2018(UTC), Mr Helpful on 19/04/2018(UTC), jvl on 19/04/2018(UTC), dlp6666 on 19/04/2018(UTC), gillyann on 21/04/2018(UTC)
Tom Mozy
Posted: 19 April 2018 10:55:59(UTC)

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Added more ULVR this morning @3875
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Mr Helpful on 19/04/2018(UTC), Harry Trout on 19/04/2018(UTC)
Mr Helpful
Posted: 19 April 2018 11:06:35(UTC)

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Big boy;60882 wrote:
Mr Helpful;60881 wrote:
Top-sliced BRCI Commodities Income today.
Still seems good value though.


If something is "good value" should you be buying it rather than selling.....


Yes that does make a lot of sense.
But not perhaps if an overweight position?
Throwing the portfolio askew?

One of those cases of Technicals v Fundamentals.
Checks and Balances !!!
2 users thanked Mr Helpful for this post.
jvl on 19/04/2018(UTC), Big boy on 19/04/2018(UTC)
satish mittal
Posted: 20 April 2018 17:40:07(UTC)

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Sorry, Dyfed,
It is not possible sometime to start a new topic such as I wish to know which are the top International companies involves with the production of car batteries. Thanks.
Satish
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