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possible bargains?
dyfed
Posted: 23 June 2017 10:57:44(UTC)
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Every so often, when it's raining, I trawl through ITs on Morningstar looking at those with the highest NAV discounts. Today, for a change, I looked instead at those which had the biggest losses ytd. Below are those that looked possibly interesting:

Several that look good being wound down so too difficult for me : NRI, AGOL
CYN natural resources: 5% yield 19% discount, but fees 1.9%, largest holdings Canada and Australasia, <20% UK, good reserves, maybe competition for BRCI/BRWM
BRNA US large cap: 3% divi, discount 8%, 1% fees, modest reserves
MHN capital growth through companies in "efficient use of energy and resources"l: largest holding (14%) in X-Elio which is global solar apparently, fee 0.9, no divi and (£0.06m) reserves, 30% discount
VNH Vietnam: 20% discount but 2.9% fee

Can't say any off these look more than interesting, but having spent an hour looking thought I'd report back!
Any further thoughts welcome!
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King Lodos
Posted: 23 June 2017 18:14:55(UTC)
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There is a tendency for consecutive down years across broad asset classes to lead to higher subsequent year returns .. Three down years in a row seems to be a bit of a magic number:

http://3p5bnx3przb73659la2iupn2.wpengine.netdna-cdn.com/wp-content/uploads/2015/07/bl.png

But, a) active funds muddy the waters, because bad management doesn't necessarily mean revert; b) valuations are important (look at the Nikkei 225 lose 80% over 20 years, but that was from a CAPE ratio of 100).

I still find (statistically) you're better off buying things on strong 6-12 month returns .. Momentum is the strongest measured market anomaly .. Although these values are changing all the time, you've got to think your 'mean reversion' is someone else's 'momentum', and one of you is wrong .. Another point is momentum only predicts the next month; whereas mean reversion may predict the next 15 years, so in each case, you have to know when the optimal time to sell is too.
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Tug Boat
Posted: 24 June 2017 10:42:21(UTC)
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I search for good trusts which have bombed and buy them. I did this with MYI, it had a dreadful time, couldn't see anything wrong with it, so I bought it. As KL suggests mean reversion came to its rescue. I've done this a few times.

My latest punt is RDI. Can't see much wrong here. It has debt, but it also has revenue. Bought at 37p, may top up soon.
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Mr Helpful
Posted: 24 June 2017 10:43:29(UTC)
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Seems more a climate for selling rather than buying.

Cheapest STOCK positions in the portfolio, none of which are arguably cheap in absolute terms :-
- HFEL
- BRCI (discussed recently)
- JRS (also discussed recently)


P.S. BRNA chart and holdings do look interesting.
Has noticeably underperformed
+ VUSA
+ NAIT
+ VWRL
Its' predominately value stocks may be due their day in the sun ?
Or maybe fall less hard than other US Stocks ?
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Mr Helpful
Posted: 24 June 2017 10:47:55(UTC)
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Tug Boat;48220 wrote:

My latest punt is RDI. Can't see much wrong here. It has debt, but it also has revenue. Bought at 37p, may top up soon.


Yes thanks for the earlier mention.
Followed up, investigated, and then added RDI to RE (Alt) holdings.
Yield might be about 7.1%?.

KL might see momentum building, (if the next trough doesn't break below 36p) ?
blackandgold
Posted: 26 June 2017 13:51:40(UTC)
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King Lodos,

Very interesting post. What's the source for the data? And how broad are the asset classes they analyse?

Re momentum, I have it in my head that six to twelve month momentum is a positive indicator also. Whereas one month momentum is actually a negative indicator - perhaps more noise than real momentum.

Hence what you're suggesting perhaps is buying an asset class after two, or even three, negative years but waiting to do so until at least the six month return is positive?

Regards
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gillyann on 26/06/2017(UTC)
King Lodos
Posted: 26 June 2017 18:56:56(UTC)
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blackandgold;48268 wrote:
King Lodos,

Very interesting post. What's the source for the data? And how broad are the asset classes they analyse?

Re momentum, I have it in my head that six to twelve month momentum is a positive indicator also. Whereas one month momentum is actually a negative indicator - perhaps more noise than real momentum.

Hence what you're suggesting perhaps is buying an asset class after two, or even three, negative years but waiting to do so until at least the six month return is positive?

Regards


That chart was from The Ivy Portfolio (I think)
http://mebfaber.com/2015/07/16/three-years-down-in-a-row-system/

Really great book – Meb Faber's stuff is always interesting and never slow or wordy.

6 or 12 month momentum is what most studies focus on .. The tricky thing with momentum is it's very dynamic and always changing – e.g. if everyone traded 6 month momentum, you'd still be in a situation where half the market underperformed, and there'd be no edge in tracking it.

Or worse, if 1% of smart investors knew everyone was trading 6 month momentum, they could front-run every trade and account for all the outperformance vs the other 99.

I regularly track momentum across asset classes to see if anything's changing .. So 1 month momentum is typically a negative indicator, but when it's with positive 6 month momentum and low 1 month volatility, it tends to be positive.

If you combine low valuations (which I think is all you're really getting with 3 down years) then you're trading like a typical hedge fund manager .. And even then, half your bets may be wrong, so you need a system for reversing decisions when they look wrong, very quickly and without too much thought .. Momentum and valuations are sort of the bread-and-butter everyone's using – it's always going to come down to the system you're using being able to maximise good decisions and minimise bad .. Despite all this 'You're up against the smartest people in the world' talk, having a small portfolio is probably the greatest advantage anyone can have.
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blackandgold on 27/06/2017(UTC)
Tim D
Posted: 26 November 2017 22:45:40(UTC)
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Another data point for this momentum vs mean-reversion stuff... this paper appeared last week (heavy going but Bloomberg has some more accessible coverage).

TL;DR summary is:

Quote:
Looking at the prices of stocks, bonds, currencies and commodities going back as far as the year 1800, they analyzed fluctuations around the long-term trend and assessed how well past price movements predicted future movements. Importantly, they did this on many different timescales, from days up to years.

The results show a surprisingly common pattern across markets. Over short periods of time, from days up to a few months, prices demonstrate momentum, meaning that movements up or down predict further movement in the same direction. Over longer periods of time, around two years or so, this pattern vanishes and longer-term reversion dominates.


(which is hardly new information to this thread, but a corroborating second opinion which shows its working can't hurt).
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King Lodos
Posted: 27 November 2017 06:24:17(UTC)
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Great paper .. It's why I often say if you're going to rotate and chase winners, you have to be very quick getting in and out .. Like walking through a maze in candlelight – it only tells you what's happening right in front of your nose .. The vast majority of performance chasers fail miserably because they're too slow to act, and get on the wrong side of mean reversion instead.

Their conclusion:
From a very practical point of view, our results suggest that universal trend following strategies should be supplemented by universal price-based “value” strategies that mean-revert on long term returns. As is well known, trend following strategies offer an hedge against market drawdowns; value strategies offer a hedge against over-exploited trends. As a consequence, we find that mixing both strategies significantly improves the profitability of the resulting portfolios.

My 10 top holdings: about 2/3rds high momentum trades, 1/3rd cheap Russian banks and energy .. (should add as a caveat: working since 1800 doesn't mean momentum won't disappear or change radically .. Trend following was an easy way to get rich 30 years ago – the game's changed much more since then than it probably did over the preceding 200 years):

https://i.imgur.com/4Knu3rK.jpg
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Micawber
Posted: 27 November 2017 09:46:36(UTC)
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A few initial reactions, not entirely random, for discussion:

- the paper supports the view that in the short run the market is not efficient (viz. the discussion on TP's slicing and range trading). It holds that on average prices overshoot by a factor of two, and undershoot to half their 'efficient' value which is taken to be the value after mean reversal.

- if you are going to take the arbitrary or intuitive figure of doubling or halving, as with Black and this (interesting) paper, then you should be selling your winning sectors or whole markets when they have doubled and buying only when they have dropped 50% off their high (and are now rising), shouldn't you?

- if you are using a study of whole sectors or markets to guide investment then the closer you can get to investing in whole markets or whole sectors, the more likely it is to work for you. But it is not at all clear how it applies to individual shares. For example, what will be the 'mean' to which a new company in a strong stage of growth will revert to?

- retrospective studies, even those going back a hundred years (I'd say *especially* those going back a hundred years), are based on data that has changed substantially during the lifetime of the study. Also, they often assume that investor behaviour is a constant.

- the more investors join trend-following, the more pronounced will be the trends, and the higher the overshoots/undershoots. So they are increasingly likely to exceed the halving or doubling assumed in the paper. This strikes me as an inherently unstable situation (but one good for those who excel at market timing).
Mr Helpful
Posted: 27 November 2017 10:23:23(UTC)
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Micawber;53724 wrote:
A few initial reactions, not entirely random, for discussion:
1. - the paper supports the view that in the short run the market is not efficient (viz. the discussion on TP's slicing and range trading). It holds that on average prices overshoot by a factor of two, and undershoot to half their 'efficient' value which is taken to be the value after mean reversal.
2. - if you are going to take the arbitrary or intuitive figure of doubling or halving, as with Black and this (interesting) paper, then you should be selling your winning sectors or whole markets when they have doubled and buying only when they have dropped 50% off their high (and are now rising), shouldn't you?
3. - if you are using a study of whole sectors or markets to guide investment then the closer you can get to investing in whole markets or whole sectors, the more likely it is to work for you.
4. But it is not at all clear how it applies to individual shares. For example, what will be the 'mean' to which a new company in a strong stage of growth will revert to?
5. - retrospective studies, even those going back a hundred years (I'd say *especially* those going back a hundred years), are based on data that has changed substantially during the lifetime of the study. Also, they often assume that investor behaviour is a constant.
6. - the more investors join trend-following, the more pronounced will be the trends, and the higher the overshoots/undershoots. So they are increasingly likely to exceed the halving or doubling assumed in the paper. This strikes me as an inherently unstable situation (but one good for those who excel at market timing).


1. The snag is assuming we know the 'efficient' value.
2. Yes to some degree. Taking too much off the table, too soon or too late, can hinder progress.
3. Yes and no.
4. Individual shares are more likely to surprise such analysis. But we should think clearly about that elusive value not price.
5. "At times like these it pays to remember there have always been times like these".
Or more profoundly "deja vu all over again".
Think 1929 or 1999.
6. Ditto.

Just random thoughts.

P.S. For us we let value drive our positions with a momentum overlay.
When both are favourable a full position or market held , when only one favourable, a part position held. When neither favourable extreme caution.
Today markets seem to exhibit +ve momentum but little value.
King Lodos
Posted: 27 November 2017 10:40:32(UTC)
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Micawber;53724 wrote:
- if you are going to take the arbitrary or intuitive figure of doubling or halving, as with Black and this (interesting) paper, then you should be selling your winning sectors or whole markets when they have doubled and buying only when they have dropped 50% off their high (and are now rising), shouldn't you?


Unless fundamentals have moved to support prices .. e.g. we keep thinking the tech sector's overshot, but it keeps climbing as earnings keep surprising, to the extent some even consider it a contrarian trade.

So you've got a sector pulling away from the global index, yet there's as good an argument it's undershooting as overshooting .. This is why I rely on prices to sell: perception's more quantifiable than reality.


Quote:
- if you are using a study of whole sectors or markets to guide investment then the closer you can get to investing in whole markets or whole sectors, the more likely it is to work for you. But it is not at all clear how it applies to individual shares. For example, what will be the 'mean' to which a new company in a strong stage of growth will revert to?


The Peter Lynch earnings line can give you an idea at least of current trends between price and growth .. But with companies like Amazon and Tesla, we're clearly basing valuations on more abstract projections.

I think it's why algorithms and quants haven't become world-beating fundamentals investors yet: they've got all the information and statistics, but we're valuing a lot of these companies on much more abstract ideas of future value.


Quote:
- retrospective studies, even those going back a hundred years (I'd say *especially* those going back a hundred years), are based on data that has changed substantially during the lifetime of the study. Also, they often assume that investor behaviour is a constant.


One of the most overlooked aspects in academia .. The reason I don't really recommend what I do to other investors is because you have to keep running the tests and questioning if the anomaly persists and how best to exploit it.

Academic papers like this are about 30-40 years behind what traders are doing – so you can't wait for blogs or papers to tell you to change tack, and can't guarantee they're not identifying anomalies that disappeared 10-20 years ago (being that they base conclusions on such long backtests).


Quote:
- the more investors join trend-following, the more pronounced will be the trends, and the higher the overshoots/undershoots. So they are increasingly likely to exceed the halving or doubling assumed in the paper. This strikes me as an inherently unstable situation (but one good for those who excel at market timing).


What happens as everyone e.g. follows the 200 SMA is buys and sells get sharper – going towards a Pulse Wave, where everyone's stops and limit orders are triggering at the same points, and the edge gets much tighter (the fast executions get in and the slow are behind the curve).

So then the clever traders (running the backtests) start front-running the popular trades – the old joke is that you use the 199 SMA for "edge", because then you're buying and selling a day early.

And over time what's happening is the way you measure trends is getting shortened, until you're in the realm of HFT, and trends potentially become non-predictive as too many traders and algorithms arbitrage away the anomaly over more and more time-frames .. So it's only partially self-reinforcing – and only so long as there are people on the other end of all these trades, getting it wrong

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Big boy
Posted: 27 November 2017 13:27:56(UTC)
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AMAZING ....never realised investing could be so complicated and you have still not got the answers.

The question is possible bargains?...........

Current suggestion......British Land,Land Securities and Hammerson. Clearly a sector unloved so be first in for recovery and hope Sherborne C starts showing interest. Still holding Hansa A where performance has been good and discount narrowed. (Ordy started to give SMT a run for its money) I am still 100% invested in stocks others don't like which I am happy with.

Another "good bargain" is Premuim Bonds where yield up to 1.4% from 1.15% (just announced) or grossed up (40%tax) 2.33%
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King Lodos
Posted: 27 November 2017 13:38:44(UTC)
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You're not going to make Stan Druckenmiller or George Soros returns buying discounted Investment Trusts..

I do see some value in that strategy, and I do pay a manager to run that one for me.

But I've also little doubt that momentum is the strongest anomaly in markets; the most functional to trade on; and the only way to make truly outsized returns without taking on undue risk
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dlp6666 on 27/11/2017(UTC)
Big boy
Posted: 27 November 2017 16:29:39(UTC)
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KL

I know you like graphs so I draw your attention to the average discounts on ITs and the massive plunge last Spring/summer. At that stage the FTSE 100 was 6000 and investors confidence was at a low level. On this forum. I said that I had liquidated all my deposits,zeros and Premium Bonds etc.. This was a massive buy signal and I went 100% invested (even raided the current a/c)


Some years ago Money Bloomberg measured the Unit trust sector (1500 funds) which includes most of the International Fund Management Houses. They then produced a list of top 100 unit trusts and I was number one.

All done by buying good stocks/markets at very good levels. It's purely to do with investors behaviour. I have tried and looked at all the other methods you have mentioned and soon found a method which is very effective. No story telling just pure facts.
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jvl
Posted: 27 November 2017 17:20:36(UTC)
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Big boy;53742 wrote:
KL
Some years ago Money Bloomberg measured the Unit trust sector (1500 funds) which includes most of the International Fund Management Houses. They then produced a list of top 100 unit trusts and I was number one.


What year was this then?

Come on KL, unmask big boy for us since he insists on telling us all the time without giving a name.

I'm sure Taleb would say that being top of a list for a year doesn't mean anything much though.

Not saying I don't like the basic principles btw. I do.
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King Lodos on 27/11/2017(UTC)
King Lodos
Posted: 27 November 2017 18:08:33(UTC)
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Big boy;53742 wrote:
KL

I know you like graphs so I draw your attention to the average discounts on ITs and the massive plunge last Spring/summer. At that stage the FTSE 100 was 6000 and investors confidence was at a low level. On this forum. I said that I had liquidated all my deposits,zeros and Premium Bonds etc.. This was a massive buy signal and I went 100% invested (even raided the current a/c)


Some years ago Money Bloomberg measured the Unit trust sector (1500 funds) which includes most of the International Fund Management Houses. They then produced a list of top 100 unit trusts and I was number one.

All done by buying good stocks/markets at very good levels. It's purely to do with investors behaviour. I have tried and looked at all the other methods you have mentioned and soon found a method which is very effective. No story telling just pure facts.


Case in point .. I've maintained much more risk aversion, yet I'm up over 50% since summer 2016 because I sold UK equities and bought things like Chinese tech shares on stronger momentum.

A good track record running a unit trust is no small achievement .. But investing styles (especially value strategies) go in and out of favour all the time, and unit trusts have a hard time beating index funds – I'd argue because they're too big and too heavily regulated.

Even efficient mkts evangelicals agree IT discount trading works, because you're buying assets below market value .. But I don't think you're going to double market returns, and you're still going to be high beta and exposed to more idiosyncratic risk
jvl
Posted: 27 November 2017 18:44:05(UTC)
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Even better, you could have combined them both by buying MNL (tech giants) at a 20%+ discount in the summer of 2016. You'd be up 82%. Wish I'd bought more...

... [currently mulling which I'd choose to know if I had the choice of one of the following]:

1. The whole truth about the JFK assassination.
2. Where Jimmy Hoffa is buried
3. Who was DB Cooper and what exactly happened to him.
4. Where flight MH370 is and, for sure, what happened (though we really know it was the pilot..)
5. Who was Carly Simon singing about (just so she can't keep selling the same story)
6. Who tucks who into bed each night in the Tony Petersen and King Lodos household.
7. Big boy's name, assuming he really was a fund manager.

It's out of 3,4 and 6, I think. Although 3 and 7 could be related.
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jvl
Posted: 29 November 2017 14:58:01(UTC)
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Big boy;53735 wrote:
AMAZING ....never realised investing could be so complicated and you have still not got the answers.

The question is possible bargains?...........

Current suggestion......British Land,Land Securities and Hammerson.


I'm thinking of IUKP - an ETF that tracks the FTSE EPRA/NAREIT UK Index and has 3 of those in its top 4 holdings.

Apart from the discounts, it's a bit of a nod to making my asset allocations a little more like the Marc Faber portfolio (25% property, 25% shares, 25% bonds, 25% gold). At the moment I'm nearly all in shares with a bit of cash.
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laang lee
Posted: 04 December 2017 23:18:56(UTC)
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Possible bargains is one of the more complicated reads on CW.
jvl - as I read you, I remembered JFK New Evidence is on TV tonight. Seen it before, but as good as any of the newly released papers.
I read that Krushkov played JFK, a big bluff, and Russia got what they wanted when USA pulled missiles out of Turkey. Putting that in, as Putin is laughing, as whatever happens with the FBI enquiry, Russia can toast the result.
But the reason I write is that 25% gold is surely old advice? Lots of different ways to hold it, I know. But what if you had had 25% of your holdings in gold, over the past 10 yrs where would you be standing now.?
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