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Fundsmith Equity Fund - Is it time to take profit
metalman
Posted: 09 January 2017 22:31:19(UTC)
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I currently allocate about 12% of my portfolio to Fundsmith and have held this for approx 2 yrs, so the gains have been excellent. I normally limit my max exposure as a general rule to 6% with a broad asset allocation.

With the so called changes from growth stocks to value stocks now being in progress and media suggestions that Fundsmith has peaked apart from any currency gains, my question to the forums more experienced contributors is:

1. Do you think there is further to go.

2. Is it time to 50% top slice

3. Sell out all together and wait for a market correction before buying back in.

Any comments much appreciated.



King Lodos
Posted: 10 January 2017 16:39:31(UTC)
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That is a tricky one ..

Really, if you're going to actively trade, it's critical you're ahead of the curve rather than behind it .. Most retail investors respond slowly, hang on too long, wait for pullbacks/consolidations, etc. and just wind up buying and selling everything at the wrong time.. They'd do much better to buy-and-hold.

Now it would be a complete guess on anyone's part whether consumer defensives (basically Fundsmith) come back strongly in the near-term, or the value trend picks up ... Assume everything's a 50:50 ... I cut my Fundsmith exposure from 50% of my portfolio to 1%, but that was as soon as it started underperforming (partly because momentum was turning against it, and mostly because valuations looked high), nearly 6 months ago.

So my own advice would be: if you're going to make active decisions, you need a fast, systematic edge based on principles that make sense, and give you an edge most investors don't have.

The philosophy behind the kind of companies Fundsmith invests in is that no matter what happens with valuations, earnings tend to grow and compound consistently anyway, so profit-taking could actually be working against the long-term compounding potential of that kind of fund ... I'm sure Terry Smith would say: just ignore it and let returns take care of themselves ... Make sure you've got some value exposure if you're playing that trend too ... A fund like Standard Life UK Recovery could be a great counterpart to Fundsmith – certainly take your average valuations down.
6 users thanked King Lodos for this post.
nigel morris on 10/01/2017(UTC), metalman on 10/01/2017(UTC), Jon Snow on 12/01/2017(UTC), Pulpos on 12/01/2017(UTC), Julio Velarde on 12/01/2017(UTC), John Grant on 14/01/2017(UTC)
Tug Boat
Posted: 10 January 2017 17:52:55(UTC)
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I sold Fundsmith and Lindsel Train Global in September, just because they had both gone stupid.

I swapped them for BUT, only time will tell....
1 user thanked Tug Boat for this post.
metalman on 10/01/2017(UTC)
Alan Selwood
Posted: 10 January 2017 19:12:58(UTC)
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I kept my Fundsmith, watched it sag, then recently edge back to roughly where it was before. I feel instinctively that I'm happy with buy and hold here.

Meanwhile, I've been looking for large IT discounts, and bought back some HOT, and have been pruning some dullards in my UK smaller companies in favour of those showing more positive momentum.



2 users thanked Alan Selwood for this post.
metalman on 10/01/2017(UTC), Pulpos on 12/01/2017(UTC)
metalman
Posted: 10 January 2017 21:12:21(UTC)
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Thanks everyone, good to have your thoughts on Fundsmith.

I'm just worried that the fund has plateaued with the recent surge in price together with the current weak sterling price. At 12% of my portfolio I don't want lose all these gains, so I'm going to take a 60% top slice and hence still maintain some presence in the fund and watch the price action.

Thanks for the suggestion King Lodos re the SL Recovery fund this looks interesting.
1 user thanked metalman for this post.
King Lodos on 10/01/2017(UTC)
Spartacus
Posted: 10 January 2017 22:32:27(UTC)
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I've held Fundsmith since the early days and I intend to hold, here's why

(1) Terry Smith has recently put over £100m of his own money in

(2) It's a long term buy and hold type fund.

(3) It's only 20% invested in the UK - I'm very gloomy about UK post Brexit. Yes Fundsmith is 50% US and they've got Trump - but I think he'll be gone in a couple of years.
3 users thanked Spartacus for this post.
metalman on 11/01/2017(UTC), Hugh M on 12/01/2017(UTC), The Pensioner on 12/01/2017(UTC)
King Lodos
Posted: 10 January 2017 22:38:17(UTC)
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The big question when taking profits from something is whether what you put them into is definitely going to do better, or at least preserve capital better – for however long you're likely to hold it.

One rule I've got (which isn't 100% by any means, but at least makes decisions easier) is never to sell while something's rising, and never buy while something's falling .. Basically never go against the trend.

The logic being that markets exhibit momentum, so when something's rising it's more likely to keep rising, and vice versa .. It goes against our own neurosis: that what's gone up a long way is more and more likely to come down .. It's why index funds do so well despite *never* taking profits on anything: they can hold onto a stock like Apple as it rises 5,000%.
2 users thanked King Lodos for this post.
Sara G on 10/01/2017(UTC), metalman on 11/01/2017(UTC)
Jon Snow
Posted: 11 January 2017 00:35:09(UTC)
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KL

In what way does this philosophy make for easier decisions -

"One rule I've got (which isn't 100% by any means, but at least makes decisions easier) is never to sell while something's rising, and never buy while something's falling."

Seems to me you are as irrational as the rest of us, which you will be assuming you are a carbon based life-form.
1 user thanked Jon Snow for this post.
King Lodos on 11/01/2017(UTC)
King Lodos
Posted: 11 January 2017 04:13:53(UTC)
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JS

Like everyone, I came to investing thinking that betting against the market (buying when others were selling, and selling when they were buying) was how you 'beat' the market..

In the short-term, markets do fluctuate between overbought and oversold .. We'd call this the 'trading range', and ignore it (because frankly, buying these micro-dips will make no difference to long-term returns whatsoever).

But the interesting things are the long-term trends .. Take Biotech's strong run up until 2015 – if you'd sold on what seemed like a strong 80% return, you'd have missed out on the next 2,000% ... If you look at Japan's 20 year bear market, you could've convinced yourself there were 20 years worth of points when it was time to buy (which thousands of investors did, and very few will have broken even yet).

What makes this strategy so dangerous is that it seems like it works most of the time, because most of the time nothing's happening .. What this system actually does is limit upside and maximise downside .. A sensible strategy does the exact opposite .. This is what Jesse Livermore meant by:

"One of the most helpful things that anybody can learn is to give up trying to catch the last eighth — or the first. These two are the most expensive eighths in the world. They have cost stock traders, in the aggregate, enough millions of dollars to build a concrete highway across the continent."
3 users thanked King Lodos for this post.
Guest on 11/01/2017(UTC), Jon Snow on 11/01/2017(UTC), Guest on 11/01/2017(UTC)
Micawber
Posted: 11 January 2017 07:02:17(UTC)
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King Lodos;41351 wrote:
JS

Like everyone, I came to investing thinking that betting against the market (buying when others were selling, and selling when they were buying) was how you 'beat' the market..

In the short-term, markets do fluctuate between overbought and oversold .. We'd call this the 'trading range', and ignore it (because frankly, buying these micro-dips will make no difference to long-term returns whatsoever).

But the interesting things are the long-term trends .. Take Biotech's strong run up until 2015 – if you'd sold on what seemed like a strong 80% return, you'd have missed out on the next 2,000% ... If you look at Japan's 20 year bear market, you could've convinced yourself there were 20 years worth of points when it was time to buy (which thousands of investors did, and very few will have broken even yet).

What makes this strategy so dangerous is that it seems like it works most of the time, because most of the time nothing's happening .. What this system actually does is limit upside and maximise downside .. A sensible strategy does the exact opposite .. This is what Jesse Livermore meant by:

"One of the most helpful things that anybody can learn is to give up trying to catch the last eighth — or the first. These two are the most expensive eighths in the world. They have cost stock traders, in the aggregate, enough millions of dollars to build a concrete highway across the continent."

That's all dandy, but the original poster will want to know whether Fundsmith is in the last eighth of a rising trend or the first eighth of a new falling one. So which is it, KL?

He'll note that you sold yours a month or two ago. But a look at the long term chart shows the fund is still rising on trend....
3 users thanked Micawber for this post.
metalman on 11/01/2017(UTC), Wilco on 11/01/2017(UTC), Guest on 12/01/2017(UTC)
King Lodos
Posted: 11 January 2017 08:11:52(UTC)
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Micawber;41352 wrote:
That's all dandy, but the original poster will want to know whether Fundsmith is in the last eighth of a rising trend or the first eighth of a new falling one. So which is it, KL?

He'll note that you sold yours a month or two ago. But a look at the long term chart shows the fund is still rising on trend....


The point is not to try and catch the last eighth or first eighth .. Forget trying to guess when the market's going to turn – just ride the wave that's there in front of you .. This is what the Jesse Livermore quote means.

So when would I sell? When there's a better wave .. I was selling Fundsmith nearly half a year ago .. I'd still buy value stocks, but if you're going to market time, you can't be sloppy on the selling.




1 user thanked King Lodos for this post.
metalman on 11/01/2017(UTC)
Mr Helpful
Posted: 11 January 2017 09:01:09(UTC)
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It is possible to take a profit (part top-slice), while allowing a position to grow in total value.

Similarly it is possible to add (part top-up) to a losing position, with which the investor may well have become disenchanted (such as commodities not so long ago), while allowing the total value to decrease.

How much is part bought/sold can be determined by the investor weighing the preferred ratios allocated to Value or Momentum.

So maybe not an all in, or all out decision, is available?
All this assumes the position is one the investor is content to hold forever while riding the waves.

P.S. Anyone noticed how the new Vanguard Global Momentum ETF 'VMOM' is doing, versus say 'VWRL' after the first 12 months?
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Kenpen2 on 13/01/2017(UTC)
srg751
Posted: 11 January 2017 09:27:33(UTC)
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[quote=King Lodos;41351]JS


But the interesting things are the long-term trends .. Take Biotech's strong run up until 2015 – if you'd sold on what seemed like a strong 80% return, you'd have missed out on the next 2,000% ...
quote.

.....................................................................................................................................


By selling Fundsmith, haven't you exposed yourself to that precise scenario,...missing out on that "next 2000%"..? Potentially ?

Fundsmiths "long term trend" is still intact, it was interrupted pre Us election on uncertainty, that's all. Understandably so as well.




If the wind we've got here today was anywhere south of Watford, it'd be making the first item on national news, !!
No doubt we'll all get kept up to date with the rain that's forecast for London tomorrow.
1 user thanked srg751 for this post.
Mickey on 11/01/2017(UTC)
Jim Thompson
Posted: 11 January 2017 11:10:07(UTC)
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You haven't got a massive percentage in Fundsmith, so to my mind it comes down to how you feel about it.

Members have said that they shied away in the past from topping up as they thought the price had topped out, then off it went again.

From my point of view, I like the style, types of companies and see it as a long term hold. Terry Smith is free to change his stock remember, and it's not always the household names on his top ten (if that makes sense).

If you had 25% in it I would consider top slicing.

Steve.....winds picking up here, good time to go up and inspect the roof? Due to warm and damp weather the moss clumps aren't dying and dropping off by themselves, and I need to get rid. Bleach any good, diluted of course? I can spray it on (mostly on my face if I go out in this wind).
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Jon Snow on 11/01/2017(UTC), metalman on 11/01/2017(UTC)
Micawber
Posted: 11 January 2017 13:20:20(UTC)
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Jim Thompson;41359 wrote:


Steve.....winds picking up here, good time to go up and inspect the roof? Due to warm and damp weather the moss clumps aren't dying and dropping off by themselves, and I need to get rid. Bleach any good, diluted of course? I can spray it on (mostly on my face if I go out in this wind).


Yeccch.!

Ferrous sulphate at 2% dilution. Does the job for lawns, will do it for moss on roofs. Better than Jeyes fluid or bleach for obvious reasons, especially when gusty...

Ferrous sulphate (also good for plants that like acid or ericaceous soils or suffer from yellowing due to iron depletion) is available fairly cheaply online or often at garden centres.

edit - PS: it turns the moss black, and would probably turn black any algae on the roof too, which is OK if your roof is slate. If it's red tiled, better test a bit first....
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srg751 on 11/01/2017(UTC), Jim Thompson on 11/01/2017(UTC), Wilco on 11/01/2017(UTC)
srg751
Posted: 11 January 2017 13:29:12(UTC)
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Jim. I have a big problem with moss on the roof as well. I once went up and used the jet wash. It took the glaze off of the tiles and now it's twice as bad. I use jayes fluid for the hard to reach areas ( spray) and a hoe to manually remove the The moss I can reach. Then you've got the gutters to clear out. Ugh.

That or get an air rifle to 'sort' the birds who are the culprits. ( bird sh#t )
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Jim Thompson on 11/01/2017(UTC)
CUEBALL
Posted: 11 January 2017 13:40:21(UTC)
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...ask lodo his roof's shining..
Keith Cobby
Posted: 11 January 2017 14:34:21(UTC)
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I wouldn't sell Fundsmith Equity unless it represented more than 15% of my portfolio. He is a top manager, one of the very best.
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CUEBALL on 11/01/2017(UTC), Raj K on 11/01/2017(UTC), Spartacus on 11/01/2017(UTC), metalman on 11/01/2017(UTC), Mickey on 11/01/2017(UTC)
J Thomas
Posted: 11 January 2017 15:48:21(UTC)
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Jim,
Fit copper pipes to the corner ridge tiles of your roof. The acidity in rainwater forms copper salts which kills off the moss, including the roots. I fitted old central heating copper pipes to my roof and it is completely moss free, my neighbours roofs are covered in moss.

Regarding Fundsmith, you could do better simply buying Berkshire Hathaway; this would give you access to ownership of world class companies including Heinz, Duracell, Coca Cola, Mastercard, Visa, Apple, Wells Fargo, and many others including railroads and insurance companies.
I would also add J &J, J P Morgan, Amazon, Microsoft, and PayPal to your US holdings. Once you fill out the W-8BEN form there really is no problem buying US stocks directly and saving on fees.
Micawber,
I see Blue Prism fell 3% five minutes after you mentioned you were reducing your holding, someone in a market making office is obviously reading your posts. Much will now depend on the Notice of Results due out on the 24th January, I continue to add. I did take out a small position in one of your tips yesterday, Polar Capital which I bought Tuesday pm on a 1.2% dip. Up 2.96% today, pleasing, that 8% dividend is too tempting to ignore. Capital came from todays dividends from Royal Mail and National Grid.



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Jim Thompson on 11/01/2017(UTC)
Micawber
Posted: 11 January 2017 16:19:19(UTC)
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J Thomas;41374 wrote:

Jim,
Fit copper pipes to the corner ridge tiles of your roof. The acidity in rainwater forms copper salts which kills off the moss, including the roots. I fitted old central heating copper pipes to my roof and it is completely moss free, my neighbours roofs are covered in moss.


That sounds like a good idea - I hadn't thought of copper.
Quote:

Micawber,
I see Blue Prism fell 3% five minutes after you mentioned you were reducing your holding, someone in a market making office is obviously reading your posts. Much will now depend on the Notice of Results due out on the 24th January, I continue to add. I did take out a small position in one of your tips yesterday, Polar Capital which I bought Tuesday pm on a 1.2% dip. Up 2.96% today, pleasing, that 8% dividend is too tempting to ignore. Capital came from todays dividends from Royal Mail and National Grid.




PRSM: not for the first time do I wonder who reads these forums. There seems to have been a tussle between profit slicers and buyers over the past few days. I'm not cooling on PRSM - after all, even with the present correction the share price is up 16.7% since 23 Dec (when I last zeroed my pfs in Google Finance). But it seems sensible to slice, King Lodos' aphorism about digging up flowers to plant weeds notwithstanding. I have in mind another couple of 'bedding plants' to buy when their prices seem right and I need to move in quick.

POLR has ticked up 6% since I bought on 30 Dec. I have it as a short term holding and will reassess after the results - likely to sell if they are not above market expectations, otherwise if/when the yield falls to the region of 5-6%.

LTG, which I have mentioned many times in these columns, is having a surge after a period of flatness. Was up 8.5% earlier today, now subsided to +4%. CEO has referred to 2017 being a 'transformational' year. Another of my AIM shares that has risen above my normal upper size threshold (up 42% since purchase). I'm holding - this year is when the revenues should start rising well; it already is in profit and paying a small divi.

Clinigen is also having a run up. +14.5% since 23 Dec. It was flattish last autumn - I understand that the three members of the Leaver family who own around 5% each have been reducing their holdings and that process might now have ended.

Sophos, which is not an AIM share but another of my small tech picks, up 35% since I bought almost a year ago, has surged almost 10% since 23 Dec too.

In all I see many small caps doing well lately along with some healthcare shares and ITs.
1 user thanked Micawber for this post.
J Thomas on 11/01/2017(UTC)
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