Share this page:
Stay connected:
Welcome to the Citywire Money Forums, where members share investment ideas and discuss everything to do with their money.

You'll need to log in or set up an account to start new discussions or reply to existing ones. See you inside!

Notification

Icon
Error

Peterson Principle Portfolio
Micawber
Posted: 13 November 2017 17:26:39(UTC)
#1

Joined: 27/01/2013(UTC)
Posts: 1,667

Thanks: 701 times
Was thanked: 2398 time(s) in 924 post(s)
Part I:

With Google Finance about to pull the plug on its portfolio facility pending recoding, it's now or never to write up the virtual portfolio I've been running since 24 November 2015 on Tony Peterson lines as an experiment. I apologise to Tony in advance for taking his name in the title of this thread. I hope to understand it better.

As I understand the essence of what Tony does, it is to buy and hold FTSE 100 stocks but to make use of their trading ranges through the year to top-slice some that have done well, in order to reinvest with accrued dividends from the pf into those closer to the bottom of their trading range at the time.

Tony generally recommends that newcomers start with some utilities stocks, or 'companies that bill you.' He scoffs at diversification - which I take to mean diversification between asset classes - but as far as equities are concerned, his portfolio of blue chips is pretty well diversified among sectors and globally.

At the time this experimental pf was set up, Tony had about nine large holdings and about 18 smaller ones.

Comments:

- 'companies that bill you' sounds pretty close to 'consumer-facing companies' with many small transactions with large numbers of customers. This has been fashionably defensive in recent years.

- a pf size of 15-30 stocks is often regarded as optimal. Fundsmith Equity and Finsbury Growth and income have similar sized pfs I believe, and both focus on quality consumer stocks.

- Tony's main holdings are fairly high-yielding stocks. You can envisage the slicing and reinvesting process as one of repurchasing income at a lower price than it was sold for, thereby increasing the overall portfolio yield and/or anticipating some capital growth of the slice reinvested.
8 users thanked Micawber for this post.
Mickey on 13/11/2017(UTC), c brown on 14/11/2017(UTC), The Spanish Inquisition on 14/11/2017(UTC), dlp6666 on 14/11/2017(UTC), Guest on 14/11/2017(UTC), gillyann on 17/11/2017(UTC), Guest on 19/11/2017(UTC), David 111 on 19/11/2017(UTC)
Micawber
Posted: 13 November 2017 17:27:56(UTC)
#2

Joined: 27/01/2013(UTC)
Posts: 1,667

Thanks: 701 times
Was thanked: 2398 time(s) in 924 post(s)
Part II: the pf

I decided not to try to duplicate Tony's own holdings, but to see whether the principles would do well applied to a broad and sectorally diversified selection of twenty FTSE 100 stocks (at least, at the outset they were all in the FTSE 100 !), among which some are Tony's own picks and others not far off. There is a focus on 'companies that bill you.' The 20 stocks picked, in which a virtual £10,000 was invested in each on 24 November 2015, were and are (the buy and hold part):

AV AZN BARC BT.A DGE EZJ GSK HSBA MKS NG NXT RDSB RMG SBRY SSE ULVR UU VOD WMH FERG

The slicing/rebalancing was done quarterly, with dividends received (which were considerable) added to the slicings for reinvestment in the 'cheaper' stocks. The minimum deal size was £1500. That meant that the 'permitted range' of the stocks was, at the outset - and so in fact it has continued - plus or minus 15% before any deal was contemplated.

No dealing charges, stamp duties nor spreads (minimal) were considered. I would mentally deduct between 0.5 - 1.0% for such charges from the pf's performance.

One of my aims was to see whether this fairly simple set of rules would work, as this kind of pf was one possible choice for Mrs Micawber to operate in future.
4 users thanked Micawber for this post.
Mickey on 13/11/2017(UTC), c brown on 14/11/2017(UTC), gillyann on 17/11/2017(UTC), Guest on 19/11/2017(UTC)
Micawber
Posted: 13 November 2017 17:29:01(UTC)
#3

Joined: 27/01/2013(UTC)
Posts: 1,667

Thanks: 701 times
Was thanked: 2398 time(s) in 924 post(s)
Part III: How did it work in practice?

Well, the slicing and reivesting seemed to work OK. At each quarter, no more than two or three stocks met the dealing criteria for slicing/reinvesting. So, for example, AZN was first bought at 4528 then top sliced at 5228 on 8 Aug 2016 then repurchased at 4302 on 25 Nov 2016 then top-sliced again at 5508 on 22 June 2017. Barclays first bought at 221 then again on 1 April 2016 at 150 and again on 1 July 2016 at 140 then top-sliced at 215 on 25 Nov 2016 and again at 227 on 24 March 2017. You get the picture (this is just to demonstrate that the slicing and repurchasing looks like it is working).

And at the present time, if I were to continue the experiment into a third year, the deals would be to slice DGE at 2586, HSBA at 735, and RDSB at 2476, and reinvest with accrued divis of £1264 into GSK at 1325, NG at 902, and UU at 838.

However, the portfolio as a whole, with a virtual £200,000 invested at the outset, is now valued two years less a week later at £204,193. The apparent gain of 2.1% is in fact entirely due to dividends received, indeed dividends have been eroded by reinvesting them to the extent that the actual cost of this £204,193 portfolio has been £208,096. Not counting any dealing charges, which were not taken into consideration.

During this period, the FTSE 100 has risen by 16.31%; a tracker would have matched that; while the UK Dividend Aristocrats ETF has lost 0.1% over the period although that does not include the 4% or so dividends per year it would have paid out in addition.
6 users thanked Micawber for this post.
Tim D on 13/11/2017(UTC), Mickey on 13/11/2017(UTC), The Spanish Inquisition on 14/11/2017(UTC), gillyann on 17/11/2017(UTC), Jenki on 17/11/2017(UTC), Guest on 19/11/2017(UTC)
Micawber
Posted: 13 November 2017 17:30:08(UTC)
#4

Joined: 27/01/2013(UTC)
Posts: 1,667

Thanks: 701 times
Was thanked: 2398 time(s) in 924 post(s)
Part iV: Comments

I find the Peterson strategy logically satisfying and elegant. But this pf did not match the returns that Tony has achieved in his pf. It seems to me that there can be two or maybe three reasons for this. Either it is stock selection (to which I did not devote much attention I confess, being more interested in the principle applied: but for example, there are no miners, while Tony's miners may not be companies that bill you, but they have done very well). Or it is the formula for slicing and reinvesting: but that tells a similar story of selling dearer and buying cheaper to Tony's own. Or market timing (there wasn't any).

On stock selection, I was interested to note that with the exception of Ferguson alias Wolseley, which I've never owned, the stocks that have done well overall are ones I have owned for at least a while in my real pfs. Currently I hold RDSB and ULVR. And one that has not done well: GSK (in the Experimental pf bought at 1348 and top-sliced at 1595 on 1 July 2016 to buy BARC at 140, see above)

So, if I was to do this again, I would:

- take more care over stock selection - e.g. I'd never buy Royal Mail..... with the aim of limiting stocks to those I believed more likely to have a secular gain than a continuing overall decline

- establish trading ranges in advance of any initial purchases, and

- open positions only when those stocks were in the 'cheaper' part of their range. That might take at least a year to build the pf.

Lastly, I am very open to comments, particularly from Tony, in an attempt to refine and improve this approach and to get it ever closer to the application of his strategy that can work for other investors. I'd also like to hear from others who have put the strategy into practice, either in virtual pfs or better, in real ones (e.g. srg71).

I emphasise that this thread is by no means intended to pre-empt or to criticise, but to explore, and I hope that other contributors will see it in the same way.
38 users thanked Micawber for this post.
Jeff Liddiard on 13/11/2017(UTC), TJL on 13/11/2017(UTC), bill blayney on 13/11/2017(UTC), Jim S on 13/11/2017(UTC), Keith Cobby on 13/11/2017(UTC), Guest on 13/11/2017(UTC), Harry Trout on 13/11/2017(UTC), Guest on 13/11/2017(UTC), andy mac on 13/11/2017(UTC), Tim D on 13/11/2017(UTC), Lemanie on 13/11/2017(UTC), srg751 on 13/11/2017(UTC), MoMoney on 13/11/2017(UTC), Vince. on 13/11/2017(UTC), Sara G on 13/11/2017(UTC), Mickey on 13/11/2017(UTC), Henry Barlow on 13/11/2017(UTC), Guest on 13/11/2017(UTC), Alan Selwood on 13/11/2017(UTC), JohnW on 13/11/2017(UTC), Money Spider on 13/11/2017(UTC), c brown on 14/11/2017(UTC), lynne shaffer on 14/11/2017(UTC), Shetland on 14/11/2017(UTC), dlp6666 on 14/11/2017(UTC), Alex Peard on 14/11/2017(UTC), Guest on 14/11/2017(UTC), Guest on 14/11/2017(UTC), novicetrader on 14/11/2017(UTC), cliff aner on 14/11/2017(UTC), Cyrus Zaydan on 15/11/2017(UTC), Guest on 15/11/2017(UTC), IanL on 15/11/2017(UTC), Jim Thompson on 16/11/2017(UTC), gillyann on 17/11/2017(UTC), Jenki on 17/11/2017(UTC), Guest on 19/11/2017(UTC), Bit at a Time on 19/11/2017(UTC)
Jeff Liddiard
Posted: 13 November 2017 17:57:10(UTC)
#5

Joined: 20/01/2012(UTC)
Posts: 423

Thanks: 1208 times
Was thanked: 231 time(s) in 136 post(s)
A lot of work gone into that Micawber and time well spent I would say. Very much appreciate your effort! I look forward to hearing views and experiences from other forum members. This will likely go for as long as your Transactions thread!. Thank you.
3 users thanked Jeff Liddiard for this post.
Micawber on 13/11/2017(UTC), Lemanie on 13/11/2017(UTC), c brown on 14/11/2017(UTC)
Alan Selwood
Posted: 13 November 2017 18:18:37(UTC)
#6

Joined: 17/12/2011(UTC)
Posts: 2,408

Thanks: 463 times
Was thanked: 3608 time(s) in 1389 post(s)
Micawber,

A very interesting and clear exposition of your processes, and from what you have written, it does sound remarkably like the pattern I have deduced from reading TP's many posts on transactions made to top-slice and reinvest.

Although I can see that it can be possible to benefit from the 'arbitrage' approach that TP uses, especially as the stocks chosen are big and liquid (so easy to trade and with very small spreads between buying and selling prices) and the dividends above average (and most long-term growth in value is said to result from dividends), it is not an approach that I feel able to use.

I am not much good at market-timing (nor, apparently are many other people, including Terry Smith), and I do like to put my money on those equities that:
- are profitable businesses (or at least heading rapidly that way if they are newish companies)
- are able to afford such dividends that they pay without any strain on the purse
- show every sign of expanding their business, their free cashflow, their profit margins
- have a high return on capital employed
- are more likely to have net cash and low/no debts rather than having to borrow heavily to invest in R&D, or to afford dividends, etc.
- have some form of 'moat' with which to stave off competition that could erode market share or profitability

Like Giles Hargreave of Marlborough Special Situations, I feel comfortable buying small chunks of promising companies, then letting the good performers stay in the portfolio, sometimes added to by buying more of their shares; then I usually prune out the ones that don't perform as hoped if there is no obvious sign of improvement. I don't feel that my market-timing skills are up to selling at what in hindsight was a high in order to reinvest in something low, not least because I have an aversion to catching falling knives. I feel more comfortable with momentum than value investing.

So where TP sells high and buys low, often among companies that don't pass my own version of quality ratings, aiming just to lock in the amount of margin between highs and lows, and trusting that his buys-back will at some point recover rather than sinking ever further into the morass, I would rather buy what should do well in the longer term and sit tight until I'm proved wrong ('The trend is your friend', as Tom Winnifrith used to say in 1999 midday TV programmes about investing).

However we all proceed, at least it's an absorbing subject to get to grips with!
9 users thanked Alan Selwood for this post.
Guest on 13/11/2017(UTC), Jim S on 13/11/2017(UTC), Mickey on 13/11/2017(UTC), Micawber on 13/11/2017(UTC), c brown on 14/11/2017(UTC), dlp6666 on 14/11/2017(UTC), Alex Peard on 14/11/2017(UTC), novicetrader on 14/11/2017(UTC), Guest on 19/11/2017(UTC)
Keith Cobby
Posted: 13 November 2017 18:19:45(UTC)
#7

Joined: 07/03/2012(UTC)
Posts: 370

Thanks: 199 times
Was thanked: 538 time(s) in 228 post(s)
It's a trading strategy and there are as many of those as there are stocks. Clearly there are many possible trading events based on number of stocks, individual performance, and timing.

My concern about the UK market in large stocks, particularly those on high yields, is that they are slowly eating the capital due to dividend cover being reduced to fund high payouts.

It looks to me, based on Micawber's dealing, that there is a lot of activity and not much productivity. Since the financial crisis I have moved more money from income (value) to growth. I am convinced that looking at total return is now the better strategy.
6 users thanked Keith Cobby for this post.
Guest on 13/11/2017(UTC), Mr Helpful on 13/11/2017(UTC), Micawber on 13/11/2017(UTC), c brown on 14/11/2017(UTC), dlp6666 on 14/11/2017(UTC), Alex Peard on 14/11/2017(UTC)
Alan Selwood
Posted: 13 November 2017 18:32:42(UTC)
#8

Joined: 17/12/2011(UTC)
Posts: 2,408

Thanks: 463 times
Was thanked: 3608 time(s) in 1389 post(s)
Me too, Keith.

Growth has had the edge over value for some time now, though there are isolated pockets of the global markets where value is gaining traction again.

My thinking is that since the world and his wife need income to replace the income no longer available from government stocks and cash deposits, equity income stocks will have been in high demand for some years now, and that means that the demand will have inflated prices, as in the housing market.

This being the case, those shares that do not meet the income targets of the majority will have been held back in value by the relative lack of demand. So they have been cheaper relative to expected outcomes. So they have more growth potential overall.

If growth is cheaper than income, the solution for those seeking at least some income could have been to buy 'growth' stocks (in the sense that they are expected to produce rising capital and/or rising income) and take out some of the gains on the capital as an income substitute. In this situation, total return becomes the key objective. As long as the growth exceeds the dividends foregone along the way,total return beats income as a strategy.

Since buying and selling is ultimately a zero-sum game, you have to be better than average at timing your buys and sells in order to cover your dealing costs AND make a profit on the capital in excess of the public at large.

I can't do that, so I'd rather buy what has decent potential rather than buy a 'cash cow' with limited scope to grow the business in terms and future capital and income levels.
8 users thanked Alan Selwood for this post.
Guest on 13/11/2017(UTC), Mickey on 13/11/2017(UTC), Micawber on 13/11/2017(UTC), Money Spider on 13/11/2017(UTC), c brown on 14/11/2017(UTC), Lemanie on 14/11/2017(UTC), North Star on 14/11/2017(UTC), dlp6666 on 14/11/2017(UTC)
srg751
Posted: 13 November 2017 19:24:24(UTC)
#9

Joined: 10/08/2013(UTC)
Posts: 1,207

Thanks: 426 times
Was thanked: 1075 time(s) in 532 post(s)

It's no secret that I've run a portfolio on similar lines, the difference being that I've sought to invest in dividend 'GROWERS'. Companies that have a long track record of annual double digit dividend increases.
That's not to say that I don't hold stocks that are currently high yielders. My first mistake was to not include a few more volatile stocks (e.g. RIO). They're the ones that throw up windows of opportunity.
As Keith says, it's a method, of which there are many. I like the fact that, all being well, a company rewarding me with a dividend of 3% today, will be paying me double that on capital invested in 8 years time, (along with the potential capital gains of course). That's why it's misleading to look at the headline yield. For instance, take a look at the dividend return on capital invested in, say, Scottish Mortgage. You'll be amazed. Yet the current divi appears paltry.
Investing for a growing income isn't a new phenomena, there a many funds and trusts run in this category.
4 users thanked srg751 for this post.
Micawber on 13/11/2017(UTC), c brown on 14/11/2017(UTC), The Spanish Inquisition on 14/11/2017(UTC), dlp6666 on 14/11/2017(UTC)
King Lodos
Posted: 13 November 2017 19:29:01(UTC)
#12

Joined: 05/01/2016(UTC)
Posts: 1,830

Thanks: 321 times
Was thanked: 2460 time(s) in 1001 post(s)
Very interesting study.

The optimal number of stocks in a portfolio (according to Buffett and Munger) is 6-8 .. I think Terry Smith's made the same argument – that more than that achieves very little .. Funds may use more for regulatory and liquidity reasons (but also probably closet-tracker reasons).


It's obviously also very short a time-frame .. But what's interesting *if* you can design a strategy that underperforms, is that all you have to do is reverse the trades (buy when you'd sell, etc.) and you outperform .. A failed experiment is a winning experiment when you turn it upside down.

The reason index funds are hard to beat is because they'll always hold more of what's doing better; less of what's doing worse .. So when a position goes against you, and loses 50%, it only matters half as much.

I think range or swing trading's the hardest thing to do well, because you're fighting against the strongest known anomaly in markets (momentum), and you're sort of giving yourself the problems a short-seller has, in that as positions go against you, you're making them larger .. It's not a strategy I think you can beat the market with WITHOUT adding some information to the system – you have to know something markets don't
1 user thanked King Lodos for this post.
Guest on 19/11/2017(UTC)
Tony Peterson
Posted: 13 November 2017 20:46:34(UTC)
#15

Joined: 10/08/2009(UTC)
Posts: 1,000

Thanks: 575 times
Was thanked: 1108 time(s) in 490 post(s)
I am flattered, even a little flabbergasted.

It might take some time for me to digest the differences between Micawber's virtual portfolio and my real one.

However, two things spring to mind. The absence of miners would have made our own performance over two years rather less spectacular. When I cleared SSE off the decks a little over two years ago replacing it with RIO at around half its present price I was not to know how useful that would turn out to be. The volatility of RIO shares has provided me with many generous profit slices and subsequent quick discounted replacements,

The other is I set no time frame on our trades but we are happy to trade little and often, tweaking our ISAs when and if opportunities arise, (unless we are off cruising) as they often do We make sure that we take our full tax free CGT allowance outside ISAs each March. Today in ISAs I happily topped up a little more MKS, as demanded by my constraints and today's market movements. Volatility in MKS has proved very very profitable this year,too.

Currently we run 11 stocks with valuations constrained to low 6 digit values. GSK, AZN, BT, VOD, UU, NG,RIO, MKS, LBG Sainsbury, CNA. We look to promote one of our minor holdings into this league each year. At this rate by the time we are 170 we will be living off a self managed FTSE100 tracker. Or perhaps not.
12 users thanked Tony Peterson for this post.
Micawber on 13/11/2017(UTC), srg751 on 13/11/2017(UTC), c brown on 14/11/2017(UTC), Shetland on 14/11/2017(UTC), andy mac on 14/11/2017(UTC), The Spanish Inquisition on 14/11/2017(UTC), dlp6666 on 14/11/2017(UTC), Mickey on 14/11/2017(UTC), Guest on 14/11/2017(UTC), Sara G on 14/11/2017(UTC), gillyann on 17/11/2017(UTC), David 111 on 19/11/2017(UTC)
Micawber
Posted: 13 November 2017 22:17:34(UTC)
#10

Joined: 27/01/2013(UTC)
Posts: 1,667

Thanks: 701 times
Was thanked: 2398 time(s) in 924 post(s)
srg751;53233 wrote:

It's no secret that I've run a portfolio on similar lines, the difference being that I've sought to invest in dividend 'GROWERS'. Companies that have a long track record of annual double digit dividend increases.
......Investing for a growing income isn't a new phenomena, there a many funds and trusts run in this category.

This is the approach of the Dividend Aristocrats ETFs, which I think is fairly sound. However, while they have done well over the period 2012 - 2016, they haven't done well over the past year, probably because of the factors Alan mentions plus the increasing probability of higher interest rates which dampens all stocks where dividends/yields are a significant factor.

3 users thanked Micawber for this post.
srg751 on 13/11/2017(UTC), Tim D on 13/11/2017(UTC), Mickey on 14/11/2017(UTC)
srg751
Posted: 13 November 2017 22:31:55(UTC)
#11

Joined: 10/08/2013(UTC)
Posts: 1,207

Thanks: 426 times
Was thanked: 1075 time(s) in 532 post(s)
Micawber;53238 wrote:
srg751;53233 wrote:

It's no secret that I've run a portfolio on similar lines, the difference being that I've sought to invest in dividend 'GROWERS'. Companies that have a long track record of annual double digit dividend increases.
......Investing for a growing income isn't a new phenomena, there a many funds and trusts run in this category.

This is the approach of the Dividend Aristocrats ETFs, which I think is fairly sound. However, while they have done well over the period 2012 - 2016, they haven't done well over the past year, probably because of the factors Alan mentions plus the increasing probability of higher interest rates which dampens all stocks where dividends/yields are a significant factor.




I'll compare my holdings with the ones in the ETF and give an appraisal. Soon !
Micawber
Posted: 13 November 2017 22:34:11(UTC)
#13

Joined: 27/01/2013(UTC)
Posts: 1,667

Thanks: 701 times
Was thanked: 2398 time(s) in 924 post(s)
King Lodos;53234 wrote:
.......


It's obviously also very short a time-frame ..


Yes it is. But I'd rather test on the basis of what happens next in real time, than on a backwards-looking analysis after the event. Though both methods have their place, and the backwards look has the merit of a longer time frame and immediately accessible figures.
1 user thanked Micawber for this post.
The Spanish Inquisition on 14/11/2017(UTC)
srg751
Posted: 13 November 2017 22:43:46(UTC)
#16

Joined: 10/08/2013(UTC)
Posts: 1,207

Thanks: 426 times
Was thanked: 1075 time(s) in 532 post(s)

Tony, you mention holding miners to be significant. That really confirms my initial flaw when I didn't. Hence RIO !
I did actually post about it when I realised my mistake. If I remember rightly, you disposed of some RIO a few weeks ago. I held because I thought the rise in inflation would be a tailwind, plus copper is rapidly approaching precious metal status. I'm not so sure now so I sold 25% on Friday with a view to buying them back at £35. I began to 'overthink' it, instead of sticking to the formula !!
King Lodos
Posted: 14 November 2017 02:16:30(UTC)
#14

Joined: 05/01/2016(UTC)
Posts: 1,830

Thanks: 321 times
Was thanked: 2460 time(s) in 1001 post(s)
Micawber;53241 wrote:
King Lodos;53234 wrote:
.......
It's obviously also very short a time-frame ..


Yes it is. But I'd rather test on the basis of what happens next in real time, than on a backwards-looking analysis after the event. Though both methods have their place, and the backwards look has the merit of a longer time frame and immediately accessible figures.



I do rely on backtesting – what I do is run it on the data I've got; if I can find a rational explanation for why it works, and the strength of the effect hasn't weakened recently, I'd tend to run it with a small amount of money, and scale up.

Reason is the important bit (possibly why so many quants and ETFs fail) .. I can't reason why swing trading would work without adding some information to the system .. Strange example – imagine phase inverted Sine Waves:

https://www.prosoundweb.com/images/uploads/PhasePolarFigure3.jpg

One is Stock A, the other is Stock B .. Whenever A's up, B's down.

What happens if you rebalance periodically between them? Well, you always sell the one that's gained, and always buy the one that's down – knowing they'll swing back .. Ultimate uncorrelated pair – should be a winner.

Result: you make nothing .. Unless you're always rebalancing near the apex (which is where you'd be adding information to the system – in this case the length of the cycle, which you'd have measured .. but in a chaotic system: not so easy) you're just as often rebalancing prematurely and missing potential gains .. And it's the potential gains we miss that we don't feel *as* losses – even though, in a perfect system, they offset each other perfectly


4 users thanked King Lodos for this post.
The Spanish Inquisition on 14/11/2017(UTC), Tim D on 14/11/2017(UTC), Guest on 14/11/2017(UTC), Guest on 15/11/2017(UTC)
Hank Elvis Dobbs (texan)
Posted: 14 November 2017 08:02:02(UTC)
#17

Joined: 19/08/2017(UTC)
Posts: 74

Thanks: 34 times
Was thanked: 53 time(s) in 34 post(s)
What a load of boring claptrap...The Peterson principle ...? Sell when overbought, buy back when oversold.. essential industries selling products/services you couldn't live without.
4 users thanked Hank Elvis Dobbs (texan) for this post.
Tony Peterson on 14/11/2017(UTC), Shetland on 14/11/2017(UTC), The Spanish Inquisition on 14/11/2017(UTC), dlp6666 on 14/11/2017(UTC)
Tony Peterson
Posted: 14 November 2017 08:07:32(UTC)
#20

Joined: 10/08/2009(UTC)
Posts: 1,000

Thanks: 575 times
Was thanked: 1108 time(s) in 490 post(s)
Elvis my friend.

You've got it in one.
3 users thanked Tony Peterson for this post.
Hank Elvis Dobbs (texan) on 14/11/2017(UTC), dlp6666 on 14/11/2017(UTC), Guest on 14/11/2017(UTC)
Hank Elvis Dobbs (texan)
Posted: 14 November 2017 08:09:49(UTC)
#21

Joined: 19/08/2017(UTC)
Posts: 74

Thanks: 34 times
Was thanked: 53 time(s) in 34 post(s)
No secret formula just good judgement and guts
2 users thanked Hank Elvis Dobbs (texan) for this post.
dlp6666 on 14/11/2017(UTC), Guest on 15/11/2017(UTC)
Micawber
Posted: 14 November 2017 08:42:37(UTC)
#23

Joined: 27/01/2013(UTC)
Posts: 1,667

Thanks: 701 times
Was thanked: 2398 time(s) in 924 post(s)
KL: A few quick comments.

The search for rational interpretations retrospectively is intellectually attractive to rational beings (us all) whose experience is built up through pattern-recognition, and useful to the extent that a system actually has order to be discovered rather than chaos.

Retrospective comparisons are very often constrained by the assumption that the investor does nothing (which is sometimes advised, but rarely the case in reality). And that the data set doesn't change (but as we know, in reality index composition, managers, fashionable investment approaches in the market change etc.).

But to get back on topic: you could see the 'information added' to the Peterson slicing strategy as the observation that stock prices swing more than their fundamentals justify. That's attributable to collective behavioural factors. The market in the short run is seen as *not* efficient even among the blue chips. Only in the long run. Short term inefficiencies can be systematically exploited.

I also found it helpful to rationalisation, to focus on the pf income. When a blue chip, dividend-paying share price rises, the yield falls so the income becomes more expensive. Slicing to buy more of cheaper income elsewhere in the pf should gradually increase the pf's total income over time. But that assumes that over time, the stocks in the pf at the least sustain their dividends and maintain, if not raise, their trading ranges. And that is a weakness of the strategy, for it cannot be relied on. It also will be affected by the price of competing income from other asset classes. And thus from interest rate increases. Since the financial crash it happens that high yielding equity pfs have done very well in a period of historically low interest rates. When that changes, they'll lose value.

Lastly, the mantra 'buy cheap and sell dear' (I mean, we all nod heads sagely, and what idiot could object to that homely statement?!). The question, however, is always what price is 'cheap' and what is 'dear'. Tony's answer is that he is not interested in any attempt to evaluate cheapness or dearness except among the stocks held long term in the portfolio, where he's looking for *relative* cheapness or dearness - relative to their trading range, and relative to each other. He does not engage in fundamental assessments.

But others like Alan, and myself, do like to look at fundamentals and other factors. For us, we are looking at stocks relative to others on all sorts of criteria - including momentum i.e. 'running winners'. We are not 'buy and hold whatever' investors. So for Tony, his Glaxo is now cheap (i.e. not as expensive as it was in June), and its 'generous yield' can be bought for less than yield elsewhere in his pf. While for me, Glaxo's fall is a matter for examination where I am concerned about the possibility of further falls to 'even cheaper' (no problem for Tony, just buy some more), and looking at other possible homes for the money that I think might do better.

The jury is still out.....
8 users thanked Micawber for this post.
bill xxxx on 14/11/2017(UTC), TJL on 14/11/2017(UTC), dlp6666 on 14/11/2017(UTC), Harry Trout on 14/11/2017(UTC), Sara G on 14/11/2017(UTC), Guest on 15/11/2017(UTC), Alan Selwood on 16/11/2017(UTC), Law Man on 19/11/2017(UTC)
4 Pages123Next page»
+ Reply to discussion

Markets

Other markets