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Investment strategy
Sara G
Posted: 13 June 2018 16:28:36(UTC)
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Tom Bards;63794 wrote:
Sara G;63791 wrote:
I think that's a sound strategy, Dian, so long as the company prospects and fundamentals are still intact. I do think there is a place for 'glamour' stocks, though, so long as they are bought either on temporary weakness (as happened with facebook earlier this year) or where the company is smaller with strong growth prospects that may not be fully reflected in the price. I have 3 strands in my share pf currently:

...

I'm currently reading 'Invest like a Guru' as recommended by King Lodos... the author emphasises only buying good companies, whatever the circumstances. There is a good section on the need to avoid 'turnarounds' that are never going to turn.



I have read the book also and this isn't really correct, he emphasises buying good companies, yes, but also reiterates the fact multiple times that if you buy these companies at increased valuations that it will seriously affect future returns. That it why he spends a lot of time on fair price valuation.

Furthermore, his standard for what qualifies as a 'good company' is very high. Cyclicals don't qualify, companies with no track record of at least 10 years also do not qualify (ie PRSM).



Sorry, I was unclear... when I say 'whatever the circumstances' I don't mean buy a good company at any price, I mean that even when investing in bargains / oversold stocks, I should still be able to make a case that it's a good company. Otherwise it's pure trading.

...You're right about his standards being very strict though, and I don't claim to be following an identical strategy. I would agree with other comments regarding smaller companies, and would also make a case for certain cyclicals being good companies - RIO (which I feel I've missed the boat on) for example - but it's obviously best to buy at the bottom of the cycle.
Aminatidi
Posted: 13 June 2018 16:44:37(UTC)
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Sara G;63836 wrote:
Tom Bards;63794 wrote:
Sara G;63791 wrote:
I think that's a sound strategy, Dian, so long as the company prospects and fundamentals are still intact. I do think there is a place for 'glamour' stocks, though, so long as they are bought either on temporary weakness (as happened with facebook earlier this year) or where the company is smaller with strong growth prospects that may not be fully reflected in the price. I have 3 strands in my share pf currently:

...

I'm currently reading 'Invest like a Guru' as recommended by King Lodos... the author emphasises only buying good companies, whatever the circumstances. There is a good section on the need to avoid 'turnarounds' that are never going to turn.



I have read the book also and this isn't really correct, he emphasises buying good companies, yes, but also reiterates the fact multiple times that if you buy these companies at increased valuations that it will seriously affect future returns. That it why he spends a lot of time on fair price valuation.

Furthermore, his standard for what qualifies as a 'good company' is very high. Cyclicals don't qualify, companies with no track record of at least 10 years also do not qualify (ie PRSM).



Sorry, I was unclear... when I say 'whatever the circumstances' I don't mean buy a good company at any price, I mean that even when investing in bargains / oversold stocks, I should still be able to make a case that it's a good company. Otherwise it's pure trading.

...You're right about his standards being very strict though, and I don't claim to be following an identical strategy. I would agree with other comments regarding smaller companies, and would also make a case for certain cyclicals being good companies - RIO (which I feel I've missed the boat on) for example - but it's obviously best to buy at the bottom of the cycle.


Genuine question, has it made you rethink your view on the likes of BT and some of the other companies that personally seem like guesswork or trading whilst crossing your fingers that the timing works out?
Sara G
Posted: 13 June 2018 17:12:01(UTC)
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Aminatidi... I'm sorry you see it that way, but you are entitled to your opinion of course. No, I'm not selling (or buying) anything as a result of reading this particular book.

Best of luck to you and everyone else, whatever strategy you choose to follow.
2 users thanked Sara G for this post.
john_r on 13/06/2018(UTC), Kaufman on 14/06/2018(UTC)
Mr Helpful
Posted: 13 June 2018 17:38:08(UTC)
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"Contrarian investing represents more than a reflex action, causing investors to buy the dips. Immediate gratification should not be expected. In fact going against the grain will likely appear foolish in the short run as already cheap assets become cheaper, causing the true contrarian to appear fundamentally out of sync with investors more succesfully in tune with the market.
Unfortunately, overcoming the tendency to follow the crowd, while necessary, proves insufficient to guarantee success. While courage to take a different path enhances chances for success, investors face likely failure unless a thoughtful set of investment principles undergirds the courage."
David Swensen ('Pioneering Portfolio Management')

Underline added by Mr H.
4 users thanked Mr Helpful for this post.
Harry Trout on 13/06/2018(UTC), john_r on 13/06/2018(UTC), King Lodos on 14/06/2018(UTC), Dian on 14/06/2018(UTC)
john_r
Posted: 13 June 2018 23:13:45(UTC)
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Aminatidi;63837 wrote:
Sara G;63836 wrote:


....... You're right about his standards being very strict though, and I don't claim to be following an identical strategy. I would agree with other comments regarding smaller companies, and would also make a case for certain cyclicals being good companies - RIO (which I feel I've missed the boat on) for example - but it's obviously best to buy at the bottom of the cycle.


Genuine question, has it made you rethink your view on the likes of BT and some of the other companies that personally seem like guesswork or trading whilst crossing your fingers that the timing works out?


I'm sure from earlier posts that Sara G's thinking on BT wasn't at all guesswork but perhaps more that it can't get any worse for BT ( which is the perfect time to buy).
I wasn't so convinced myself especially on future prospects for BT - financial irregularities, pension drags, questionable growth opportunities etc . However the balance has tipped for me now that I see the chairman tucking in as well. Growth might be slow in coming but with a secure 7.5% dividend (that's just my opinion) I'll treat it as a bond proxy for a while. So thank you Sara G I will shortly be tucking some away for myself.
King Lodos
Posted: 14 June 2018 05:41:45(UTC)
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I think the epitome of this philosophy is Buffett's mantra, I often repeat, that: You shouldn't buy a single share in a company, unless you'd buy the whole company.

He also has this idea that if you gave everyone an absolute limit of 20 trades they could do in their lifetime – or the idea that markets were going to close tomorrow, for next the 30 years – THAT's the level of research and certainty you should be exercising.

I think Jesse Livermore pointed out that most investors put more time and energy into researching a secondhand car purchase than the stocks they buy .. I've spent longer this month researching hats than any of my funds or holdings .. It's one of these behavioural anomalies – we put 20% of our energy into things that are going to account for 80% of our success/wellbeing.
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Tim D on 14/06/2018(UTC)
john_r
Posted: 14 June 2018 08:21:07(UTC)
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King Lodos;63862 wrote:
I think the epitome of this philosophy is Buffett's mantra, I often repeat, that: You shouldn't buy a single share in a company, unless you'd buy the whole company.

He also has this idea that if you gave everyone an absolute limit of 20 trades they could do in their lifetime – or the idea that markets were going to close tomorrow, for next the 30 years – THAT's the level of research and certainty you should be exercising.

I think Jesse Livermore pointed out that most investors put more time and energy into researching a secondhand car purchase than the stocks they buy .. I've spent longer this month researching hats than any of my funds or holdings .. It's one of these behavioural anomalies – we put 20% of our energy into things that are going to account for 80% of our success/wellbeing.


Are these the reasons why Buffet lost half a billion dollars buying Tesco?
King Lodos
Posted: 14 June 2018 09:01:14(UTC)
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I'd think the fact Buffett can make mistakes should give anyone hope – it proves he's a normal person who's done well with a few principles.

Also, when your portfolio's larger than most country's economies, there aren't many companies you can meaningfully buy .. Tesco was basically big and cheap .. At that size, that's often probably the best you can hope for.
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john_r on 14/06/2018(UTC)
Dian
Posted: 14 June 2018 09:57:21(UTC)
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It seems there is no "best investment strategy" except the one that works best for you. From now onward I would like to stay with one that works best for me. Even research reports could have judgements of errors. Besides, some reports are short term driven. On the other hand quality research reports will look for beyond short term with useful information..
King Lodos
Posted: 14 June 2018 13:11:01(UTC)
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I think the best investing strategy simply involves a way to estimate future returns (which is basically valuing a company – as companies are generally valued on a multiple of earnings).

If you're buying a stock and haven't worked out what your investment's likely to return, then you don't really know what you're investing in .. It's going to be 'hold and hope'.

But when you can do that, THEN you can measure whether it's worth buying stock or debt in a company; whether it's a good time to buy risk assets; whether one company offers better value than another, plus you've got a model that always be improved .. And I suppose that's the lesson of Ben Graham – the evolution of markets from speculating to informed investing
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Dian on 15/06/2018(UTC)
Law Man
Posted: 14 June 2018 14:30:47(UTC)
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Dian: put simply, you intend to follow a 'Value' style. There is nothing wrong with that. I suggest you read books by the star investors who have pursued Value successfully.

Remember you will have to undertake fundamental analysis, including analysis of accounts.

My objections to Value include:

(1) you do not benefit from supply & demand momentum; you must wait - perhaps for years - until some catalyst causes a re-rating

(2) at present you will be going against the market, in that for a decade Value has underperformed Growth. The reasonable response to that is that in past decades Value outperformed.

(3) it has been said that Value carries more risk than Growth, because many 52 week lows can go far lower, and even become bankrupt. At present you do not have the reward for it.

That is a view from a Growth/ Momentum investor. By all means pursue Value: better than changing styles. Make sure you spend scores of hours reading and practising. I hope you succeed. Please report back after a year.
3 users thanked Law Man for this post.
Keith Cobby on 14/06/2018(UTC), Tim D on 14/06/2018(UTC), Dian on 15/06/2018(UTC)
Mr Helpful
Posted: 14 June 2018 15:34:48(UTC)
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Maybe as some investors advocate : Value + Momentum ?

When only one present, step aside or be ready to sell.
Keith Cobby
Posted: 14 June 2018 15:55:30(UTC)
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For me Value = Income and with historically low interest rates too many companies are over distributing or having to compromise business decisions in order to protect/grow the dividend. I have been a growth investor for the last 10 years. Before that I was a Value & Growth investor who paid attention to dividends. Now it is total return for me and I cannot see this changing for the forseeable future. What changed my strategy was noticing the very strong correlation between total return and dividend yield of my holdings.
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Mr Helpful on 14/06/2018(UTC), Mike L on 16/06/2018(UTC)
Tom Bards
Posted: 14 June 2018 15:57:14(UTC)
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I wouldn't necessarily call buying stocks at 52 weeks lows 'value' investing. Clearly there is a difference between buying quality companies that are growing year on year and so called 'value' investing. A cornerstone of quality investing is growth, if the companies you are buying are not growing then to me you are not buying value.
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Dian on 15/06/2018(UTC)
King Lodos
Posted: 14 June 2018 16:57:29(UTC)
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I don't think the distinction between value and growth's really useful .. It's an invention of academia.

We all want to buy assets for less than they're worth, and growth's as much a part of that equation as anything .. Really it should be cheap vs expensive (but academia's too wed to Efficient Mkts to accept such a distinction).

The PEG ratio puts value in the context of growth, and growth in the context of value .. I think any good investment strategy would seek to do the same

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Tim D on 14/06/2018(UTC), Mr Helpful on 15/06/2018(UTC)
TJL
Posted: 14 June 2018 17:02:38(UTC)
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King Lodos;63874 wrote:

....It's going to be 'hold and hope'.
....the evolution of markets from speculating to informed investing


At worst I'm a 'hold and hope' investor.
At best I'm an informed speculator.
Jon Snow
Posted: 15 June 2018 00:03:11(UTC)
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FWIW,

I'm a top down investor, I don't have the skills, knowledge or patience to trawl through company accounts (they're made up anyway) or follow hot stock tips, or even choose the best fund/trust/share.

I prefer making a punt on global trends, demographics etc -

Online world

The rise of the East

Media content

Genetics

Interesting video update from Nick Train (FGT etc.) on their dedication to the value of brands, and by implication their investments ability to adapt/adopt to the new marketplaces.

http://www.finsburygt.com/

PS I live in a nice market town in Yorkshire and over the last 3 months I have seen the town centre go very quiet.

I was the only customer in Jo Malone (for my wifes birthday) and I asked are you quiet? They said yes, why I said, business rates and online shopping.









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Haleric on 15/06/2018(UTC), Luca Brasi on 15/06/2018(UTC), Dian on 15/06/2018(UTC), Keith Cobby on 15/06/2018(UTC), Tim D on 15/06/2018(UTC), Jeff Liddiard on 15/06/2018(UTC), Mike L on 16/06/2018(UTC)
Dian
Posted: 15 June 2018 08:08:02(UTC)
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I agree that Value Company should have some growth as well. Some Big companies today have begun their business from the garage or backyard. I will have to develop art of screening companies by looking at their mid and long term business outlook, balance sheets and other criteria that I am going to use. As there are high growth, debt free and cash rich companies, those places will be good place to begin. I have to maintain discipline and patience in buying and selling stocks. I should also avoid buying them when everybody is talking and buy when nobody is talking and when I find great value there. In my view, that the analysis of the market should be kept separate from analysis of individual stocks. The buying decision should be made solely on the analysis of the individual stock. I like to elaborate further.

First, on selling: The stock gives me a sell signal. I ignore it because the market looks strong. It is a big mistake if my investment plan indicates selling the stock.

Second, on buying: The stock gives a buy signal. The market looks overbought and due for correction. If the stock says buy according to my study I would buy the stock. Many missed opportunities by not buying stocks irrespective of market situation.

There are always some stocks moving against the market. For an investor, I don't think the direction of the market matters much.

Sector wise or business wise growth will vary from one country/region to another country /region as a result of different demographic factors. In the finance world if the market rose today, a piece of good news will be noted. If it fell, some bad news will be noted. It is a big mistake to change portfolio by looking at daily financial news. Many investment sales pitches are just wishful thinking supported by faulty analysis. They include some portion of exaggeration and misstatements and so on. A vast amount of information is available to investors. Fortunately, we only need to understand a small portion to be a successful investor. Timely information possesses great value.

I found often impatient and undisciplined investors have lost money. Some other mistakes are over trading, over confidence, buy, sell and rotate stocks by following quarterly earnings and short term driven research reports and chasing hot stocks and so on. After all it is not that bad at all to pick bearish stocks (currently out of favor quality ones) and screen them to pick the best winning quality companies. I found that both intelligent value and growth investors have outperformed the market in the mid and long run by buying and holding quality companies.
King Lodos
Posted: 15 June 2018 09:38:00(UTC)
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Dian;63894 wrote:
I agree that Value Company should have some growth as well. Some Big companies today have begun their business from the garage or backyard. I will have to develop art of screening companies by looking at their mid and long term business outlook, balance sheets and other criteria that I am going to use. As there are high growth, debt free and cash rich companies, those places will be good place to begin. I have to maintain discipline and patience in buying and selling stocks. I should also avoid buying them when everybody is talking and buy when nobody is talking and when I find great value there. In my view, that the analysis of the market should be kept separate from analysis of individual stocks. The buying decision should be made solely on the analysis of the individual stock. I like to elaborate further.

First, on selling: The stock gives me a sell signal. I ignore it because the market looks strong. It is a big mistake if my investment plan indicates selling the stock.

Second, on buying: The stock gives a buy signal. The market looks overbought and due for correction. If the stock says buy according to my study I would buy the stock. Many missed opportunities by not buying stocks irrespective of market situation.

There are always some stocks moving against the market. For an investor, I don't think the direction of the market matters much.

Sector wise or business wise growth will vary from one country/region to another country /region as a result of different demographic factors. In the finance world if the market rose today, a piece of good news will be noted. If it fell, some bad news will be noted. It is a big mistake to change portfolio by looking at daily financial news. Many investment sales pitches are just wishful thinking supported by faulty analysis. They include some portion of exaggeration and misstatements and so on. A vast amount of information is available to investors. Fortunately, we only need to understand a small portion to be a successful investor. Timely information possesses great value.

I found often impatient and undisciplined investors have lost money. Some other mistakes are over trading, over confidence, buy, sell and rotate stocks by following quarterly earnings and short term driven research reports and chasing hot stocks and so on. After all it is not that bad at all to pick bearish stocks (currently out of favor quality ones) and screen them to pick the best winning quality companies. I found that both intelligent value and growth investors have outperformed the market in the mid and long run by buying and holding quality companies.


And: you don't need to buy everything.

Better to hold 6 really great stocks than a mixed bag of 20 .. And your biggest edge is your own experience – so if you don't work in oil exploration or aerospace, there's no need to have an opinion on Shell or an airline stock.

Invest Like a Guru would probably be the ideal book for you – it's written by a Tian .. Pretty close to a Dian
https://www.amazon.co.uk/Invest-Like-Guru-Generate-Investing/dp/1119362369




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Dian on 16/06/2018(UTC)
Mr Helpful
Posted: 15 June 2018 11:14:40(UTC)
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King Lodos;63895 wrote:
And: you don't need to buy everything.
Better to hold 6 really great stocks than a mixed bag of 20

If Dian were a momentum investor that recommendation would make more sense.
With Value Investing there is a case for spreading the net wide.
Good Value can remain dormant for many years, then a position may spring into life when least expected.

The compromise might be : Value + Momentum, if fewer positions are to be held.
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Dian on 16/06/2018(UTC)
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