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Investment strategy
Tom Bards
Posted: 15 June 2018 12:22:29(UTC)
#41

Joined: 28/06/2017(UTC)
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Mr Helpful;63900 wrote:
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.




That sounds more like deep value investing which is, in my opinion, a flawed style of investing. That notion of value is exactly the reason why Bruce Berkowitz lost billions investing in Sears. Value investing, i.e. Buffet and Lynch, involves only buying companies which have a consistent track record of growing revenue and increasing EPS year on year along with consistently high ROE and margins . Typically, if a company has all these qualities its value is not lying dormant, this is due to the fact that these companies' stock are almost always the best performers over the long term.





3 users thanked Tom Bards for this post.
King Lodos on 15/06/2018(UTC), Mr Helpful on 15/06/2018(UTC), Dian on 16/06/2018(UTC)
King Lodos
Posted: 15 June 2018 12:51:09(UTC)
#43

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Yeah, I think distressed investing – or a 'quant' approach to value – is where you can't diversify enough.

But individual stocks .. unless you're buying crap, the diversification benefit of 24 stocks vs 8 is so minor (about 1% reduction in standard deviation), and the biggest problem is you won't be able to keep up with 24 companies.

I struggle with 8 .. and to an extent UN and DEO are Nick Train's holdings, and I don't really follow them .. I think 6 is about the limit, unless you can afford to treat investing like a day job

Mr Helpful
Posted: 15 June 2018 13:50:40(UTC)
#42

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Tom Bards;63907 wrote:
Mr Helpful;63900 wrote:
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.

That sounds more like deep value investing which is, in my opinion, a flawed style of investing........ Value investing, i.e. Buffet and Lynch, involves only buying companies which have a consistent track record of growing revenue and increasing EPS year on year along with consistently high ROE and margins . Typically, if a company has all these qualities its value is not lying dormant, this is due to the fact that these companies' stock are almost always the best performers over the long term.

Yes, dormant perhaps a poor choice of word.
Dormant in the intended thinking, might mean a stock simply dragging along the bottom of its' upward sloping valuation channel, so maybe rising with the underlying earnings. Nothing spectacular. No trading opportunities presented on valuation grounds.
The Quality criteria mentioned ideally would act as an initial filter, before a stock comes on to the menu.
Then a wait for Value (not just price) to appear, the second filter.
Finally purchase triggered by Technicals, the third filter.

On a personal note do not favour all-in or all-out decisions.
Prefer progressive adjustment on a scale as values fluctuate.
Small steps.
King Lodos
Posted: 15 June 2018 15:14:06(UTC)
#44

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That's the Warren Buffett approach.

Your quality filter is your investable universe .. Have Fundsmith got it down to 50 stocks? .. Basically businesses you would own at the right price, that you keep track of semi-regularly. (and this is your dozen checkpoints: long-term value creation; ROE; ROC; a moat (very important to protect a high ROE); stable earnings, margins; manageable debt; etc.)

Then you need a valuation model – I think Terry Smith uses Free-Cash-Flow Yield and Growth (earnings, EBITDA, etc.); Lindsell Train use Discounted Cash-Flow .. so they're both looking at value dynamically (rather than statically – which I think might be why 'value' strategies have degraded .. the market's got smarter at projecting value).


And then it's basically buying things on your shopping list when they go on sale.

And I think both LT and Fundsmith (and Buffett) have a point at which they sell .. With Fundsmith I think there is a sort of cut-off around a PE of 40 – which is where they sold Domino's – but ideally you don't sell, and you don't 'top-slice' .. Long-term compounded value is what you're after – selling is only a defence against markets seriously overvaluing a company

4 users thanked King Lodos for this post.
Mr Helpful on 15/06/2018(UTC), Dian on 16/06/2018(UTC), Harry Trout on 16/06/2018(UTC), Jenki on 16/06/2018(UTC)
Dian
Posted: 16 June 2018 03:33:24(UTC)
#45

Joined: 09/10/2016(UTC)
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Currently, I am studying my mistakes and finding some solutions to overcome them. Most often I was fully invested.

I am going to have some rules.

Rule number one: Do not make mistakes again
Rule number two: Stay with business that you can understand
Rule number three: Don’t get addicted to debt
Rule number four: Do not diversify or rotate for the sake of doing them
Rule number five: Be patient and disciplined
Rule number six: If I could find an outstanding company put more eggs on it while falling love with it.
2 users thanked Dian for this post.
King Lodos on 16/06/2018(UTC), Tim D on 17/06/2018(UTC)
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