Investing in Shares..

[Intrinsic_Value]

Why the retail funds and not the ETF's?

neither, you don't understand by being invested 'blindley' in either retail funds or ETF's.

If you are time poor then index funds, but even then you really should gain a basic understanding, and I mean a real basic understanding.

There was a thread that has popped up recently about Peter Spann.

Well I tried to warn people several years ago, but I think those that got sucked in had a 'basic' understanding without a real understanding.

There is only one thing more dangerous than no knowledge and that's a little knowledge. At least someone with no knowledge might be more careful.

 

[Intrinsic_Value]

Over 10 years they are still 1% under benchmark.

which one?

If your reply is in answer to the geared fund, then its quite easy to answer this: its because the underlying market during this phase is not a secular bull market.

If you are talking about one of the other funds, then without doing research, my hypothesis, would be because of management fees.

 

[Intrinsic_Value]

I like LICs, and I prefer them over ETFs, but dividend growth has been very poor in recent years.

Looking at some old school, low-cost LICs:

AFI's DPS was 12c in 2000 and today it is 22c.
ARG's DPS was 16c in 2000 and today it is 26c.
MLT's DPS was 63c in 2000 and today it is 84c.
WHF's DPS was 12c in 2000 and today it is 17c.

The CAGR (compound annual growth rate) of dividends over the last 13 years then are:

AFI - 4.77%
ARG - 3.81%
MLT - 2.24%
WHF - 2.72%

After inflation you are just barely achieving positive growth on AFI and ARG dividends, and possibly negative growth on MLT and WHF dividends.

Although they paid a dividend every year, the dividends really need to be increasing well above the rate of inflation for them to be considered good dividend stocks... don't they (otherwise you could buy treasury inflation-linked bonds and get the same income growth for zero risk)?

They are promoted as great for long-term buy and hold/income-orientated investors, but the poor history of dividend growth never seems to get a mention.

Having said that I think they can be useful for some investors and buying them when they are at a discount to their NTA is a pretty simple and effective strategy.

They will approximate the underlying trend of the market.
But the 'trend' has not been a happy place for most during the last 10 odd years.

So again understand the underlying nature of the market

 

[Intrinsic_Value]

And the ROE's in 2013 for these were (pretty low):

AFI - 5.2%
ARG - 4.6%
MLT - 5.0%
WHF - 3.5%

.

cant look at ROE's for LICS, by definition their ROE wont reflect the ROE of the underlying companies unless they have purchased at BV

 

[Intrinsic_Value]

Yes that's a good point, better to stick to NTA's, thanks.

Yes that's one good way of looking at them.

Been some good long term studies on the variance of fund NTA to listed price and the future subsequent returns of the listed fund.

And for those that are time poor, but really understand the basic (as per above post), there was a time not so long ago, that one could pick up shares in LICS trading significantly BELOW NTA, in some cases 20%+.

So if one bought during that phase one was buying listed shares at a 20% discount to 'market price' of those shares. I made some good money during this time

 

[redwing]

But then again I wouldnt be adding to my holdings at the moment as the market looks overcooked to me but who really knows...

Based on price, relative to business earnings?

 

[chindonly]

Yes that's one good way of looking at them.

Been some good long term studies on the variance of fund NTA to listed price and the future subsequent returns of the listed fund.

And for those that are time poor, but really understand the basic (as per above post), there was a time not so long ago, that one could pick up shares in LICS trading significantly BELOW NTA, in some cases 20%+.

So if one bought during that phase one was buying listed shares at a 20% discount to 'market price' of those shares. I made some good money during this time

Always wondered about that - how they could trade that far below.

Thought it was too good to be true, but you have crystallised my thinking.

Thanks!

 

[equitymate]

Based on price, relative to business earnings?

Basically yes with the caveat being I am a tightwad whose interest is long term, I personally cant see any value and I think the current high payout ratio party has just pushed prices up further past reasonable value and also diminished future earnings growth because what was business reinvestment money is going out as dividends, but saying that nothing to stop prices rising alot more and even when the next correction comes the market low could be higher than we are now.

But I am not selling.

I suspect we are going into more of a stockpickers market (niche smallcaps perhaps?) as aposed to 18months ago where low hanging blue chip fruit was plentyfull.

 

[willair]

I suspect we are going into more of a stockpickers market (niche smallcaps perhaps?) as aposed to 18months ago where low hanging blue chip fruit was plentyfull.

There is still heaps of low hanging blue chips out there just investors don,t see them as such every week by the time "F-R" have them in print everyone buys in Monday,if anyone wants to read a good book look at this one..
What I Learned Losing a Million Dollars,by J Paul and B Moynihan..

http://www.amazon.com/Learned-Million-Columbia-Business-Publishing/dp/0231164688

 

[equitymate]

If most market particpants dont know their name they are not blue chips, what you are talking about is a stock pickers market, which is kind of the point I was making about small caps.
That book looks interesting.

 

[tangychips]

I don't know if anyone has had a look into a share named GOZ (Growthpoint Property). It deals exclusively with commercial property and has good historical gains.

For the last few years it's had dividends that ended up around ~8% p.a (not going to change for the worse due to reliable tenancy agreements and good management)

This YTD it's had 35% return to 31/10/13 for the security. Not bad in my opinion but not sure how it stacks up against those index funds.

 

[Intrinsic_Value]

I'm still in slow sell off mode.

Got nicely whopped for November with a final month end loss of 6% for the month.

Time to be more conservative and increase those sell downs, the trend is no longer being my friend (and IV is still below lowered market prices)

Intrinsic Values Modified Trading Rule Now Being Activiated

Where IV are below share prices, and the 'trade' is going against you, do more of that which is working and less of that which isn't. Since the hold trade is not working for me I need to do more selling and less holding, Mr Market is informing what to do.

 

[tangychips]

@Intrinsic_Value do you always buy based on intrinsic value or do you also do speccy buys as well?

And regardless of your answer - how you been going with your strategy over the past few years?

Just curious

 

[TPI]

I'm still in slow sell off mode.

Got nicely whopped for November with a final month end loss of 6% for the month.

Time to be more conservative and increase those sell downs, the trend is no longer being my friend (and IV is still below lowered market prices)

Intrinsic Values Modified Trading Rule Now Being Activiated

Where IV are below share prices, and the 'trade' is going against you, do more of that which is working and less of that which isn't. Since the hold trade is not working for me I need to do more selling and less holding, Mr Market is informing what to do.

Hi IV,

When you say the trend is no longer being your friend, over what time period are you assessing this trend, eg. 1 week, 1 month, 3 months, 6 months, etc... ?

Thanks.

 

[Intrinsic_Value]

I never buy speculative, always must have some form of IV logic to it, otherwise I just get swept around with the changes in investor psychology trading.

 

[Intrinsic_Value]

Hi IV,

When you say the trend is no longer being your friend, over what time period are you assessing this trend, eg. 1 week, 1 month, 3 months, 6 months, etc... ?

Thanks.

one month or less.

Basically where
(a) shares are trading above IV
(b) I already hold a position in that stock purchased when the price was below IV
(c) the trend of the share is still comfortably upwards

Then I hold the position. If Mr Market keeps wanting to pay a higher price, then I just stand on the sidelines and let him bid the price up.

But where that trends starts to change, I get nervous because share price is above IV and the trend is starting to change, so I then become more aggressive and start selling more heavily to lock in those profits.

 

[Intrinsic_Value]

And regardless of your answer - how you been going with your strategy over the past few years?

Just curious

The last few years have been a value investors dream. Its been like shooting fish in a barrel.

Each year since 2009 has seen large returns. This year it was up 107% for the calendar year to October. In November I have generated a loss, so time to be more careful.

 

[TPI]

one month or less.

Basically where
(a) shares are trading above IV
(b) I already hold a position in that stock purchased when the price was below IV
(c) the trend of the share is still comfortably upwards

Then I hold the position. If Mr Market keeps wanting to pay a higher price, then I just stand on the sidelines and let him bid the price up.

But where that trends starts to change, I get nervous because share price is above IV and the trend is starting to change, so I then become more aggressive and start selling more heavily to lock in those profits.

Thanks, I see your logic.

What about broader trends in the All Ords index or All Ords Accumulation index?

Does this factor into your decision making?

 

[Intrinsic_Value]

Thanks, I see your logic.

What about broader trends in the All Ords index or All Ords Accumulation index?

Does this factor into your decision making?

Yes I do but not for any trend purposes in itself.

As a general rule, when markets are going up, then there is increased interest in the individual participants in the market.

This means that more people are running the ruler over every participant.

This means that if 'something is cheap' in a good market, then maybe its cheap for a reason.

If 'something is cheap' in a depressed market, then there is very good probability that its because there is insufficient demand on the market as a whole (and so its very easy to find high quality 'bargins')

So in 'good markets' ie markets that are trending upwards nicely, Value Investors can face some real dangers. Because value investors are always looking for 'cheap', in a good market value investors have the real risk of buying cheap but 'cr**p'

 

[redwing]

Do you consider yourself a Value Investor or a Trader then IV?