I know this is a property forum, but there are some share gurus here as well, and I need to diversify. I am an absolutely novice with shares. People say buy blue chips, but blue chips can be duds as well. For example, NAB share was trading at $28 Dec00, now April 10, and it is still $28. Westfield sank from $20 to $12, Telstra price now is lower than when it was floated million years ago, etc etc. These are what I would call blue chips but they are going nowhere, if you make money on 5 blue chips, and lose money on the other 5, then you are not in front at all. So my plan is to regularly contribute to index/ETF and save all the hassles. Just wondering what the others think.
Is picking individual shares for mugs ?
- Thread starter bornfree
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Why do you need to deversify?
If your getting results with what your doing then whats the point in changing?
Each too their own i guess,once you look at some of the funds that are out there
,the entry-exit costs,ongoing management fees,and all the television-soap box experts ,leading Economists that are out,i would just go it alone,what you have to look at is the div's-franking credits over a ten year period,most top 50 ASX listed companies have done very well during the Gfc if you held and bought back in the lows and held everything,there is no chance of a lifetime on the ASX or any worldwide market,and every market is the same if you buy and spend more money in the start to buy into greater quality in the start Banks High end miners,up too 80% in a stand alone bule chip set-up,then have the other working on all the start-up miners,or any company that has success with shrewd media management,and the per unit cost is 11 cents and they go above 50 cents..imho..willair..I think your plan to regularly contribute to an index fund is the correct move in my opinion (ie opinion not advice).
Why?
you are a novice with shares (there is nothing to be shy about this, recognise yourself and you recognise your risks).
Why index?
because very few managers/people/funds/ can outperform the index over the long term, especially once transaction costs are included.
Why regular contribution?
because it removes the temptation of market timing, most people CANT time the market.
My only other suggesting is to keep the regular contributions relatively small compared to your income, this way you will remove temptation to time contributions, or cease them when the going gets tough.
My thoughts are that all those shares you've mentioned were smashed during the GFC.
But then; almost ever share in the world was.
This being the case, I'd be buying those "blue chip" shares while they were down and out, because they will (and have) come back up.
You are looking at a very narrow "window" for these shares.
I'm spewing that I didn't buy any shares last year when they all crashed, but I wasn't really in a good position to do so; buying the business required all our resources during the GFC.
If I'd put $400k into ANZ instead of the business.......
hindsight.
In my experience, yes its for mugs. Unless you have the time to research each company you invest in very thoroughly and monitor it regularly. By monitoring, I don't mean monitoring the share price
. I've done both for the last 15 years (index and individual) and the index has outperformed my portfolio for 13 of the last 15 years. The 2 other years were probably just luck. This seems to be a similar result to most people who have tried individual share selection (there will be plenty who say they have outperformed, but they usually won't let you audit their results though).
As I.V. posted above, even highly trained fund managers struggle to beat the index.
There are plenty of index ETFs around with fees of under 0.5% which alone saves a lot of the admin and brokerage costs of buying individual shares.
Agree, I don't know much about the share market, other than what I have to do for clients on an accounting basis. But I would like to diversify a little bit at some time. My ammature opinion is that property is time in the market, but the sharemarket is timing of the market. Was frustrating seeing the shares so low during GFC, I knew they'd go back up and if I had any spare cash at the time I would have put it all into the sharemarket then. A lot of those blue chip ones dropped almost half, or at least a third, and have regained a lot of that already. I have no intention of playing crystal ball with the sharemarket, so am going to wait for the right time to buy some... I plan to be cashed up for the next crash instead.
It is not easy to totally rely on rental income due to the unexpected such as major repairs etc.
I am no expert in picking shares nor timing the market, and I am convinced that the so call experts don't really have a crystal ball to pick the winners (Personal Investor magazine needs to come up with at least 10 shares to recommend in every issue, I think they just doing the rounds). I think dollar cost averaging the index/ETF is the better way to go, rather than choosing which shares or buy into expensive managed funds.
Thanks everyone.
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Hi Bornfree, I personally think the following article by Nick Gogerty is an excellent answer to your question.
Why mean ignorant monkeys beat median jumping clowns in the investment circus
it was for me!!! and i feel 50k muggish, their was no control for me, on what happens to share prices, an example would be the latest in the US, and then there is the volcano that grounds flights, just a bit of a negative that i don't handel too well.
but property at least. i have the ability to value add , this helps for any market, and allows me the opertunity to get rid of a dog if i need to.
but property at least. i have the ability to value add , this helps for any market, and allows me the opertunity to get rid of a dog if i need to.
This is of course nonsense. There is massive dispersion of returns even within the top 10 companies.
5 winners and 5 losers could see you well in front, just in front, not in front, just behind or well behind.
If you really believed what you wrote, then an index fund is not for you, because you will have all the winners and all the losers, and therefore by your reasoning, you won't be in front at all.
and you have limited control over property prices, yes you can value add, but the overall price (as always there will be small exceptions) will be dictated by market forces and pyschology
i wonder what will be the price of property prices near this volcano? do you think it will have an effect????
in regards to getting rid of a dog, its far easier with shares, than with property.
In regards to control over the asset, you are correct, there is far more control over a privately owned property, than being a small shareholder.
However this is now being built into the price of property (ie property is trading futher above its investment metrics (ie yld) because of this).
No. At least no more so than trying to find the right house in the right suburb in the right town in the right state.
None of you guys who know about property learnt it o'night. Why do you expect to be an o'night expert on stocks?
And why are you concerned if some blue chips go up and others go down in the short term? I'm tired of being told property is for the long haul whenever it doesn't look too bright in any particular region.
Let's be a little consistent and apply the same rules to both investments.
Edit: "People say buy blue chips," I've never said to buy them exclusively, or even mainly, "but blue chips can be duds as well." I DO say that though.
None of you guys who know about property learnt it o'night. Why do you expect to be an o'night expert on stocks?
And why are you concerned if some blue chips go up and others go down in the short term? I'm tired of being told property is for the long haul whenever it doesn't look too bright in any particular region.
Let's be a little consistent and apply the same rules to both investments.
Edit: "People say buy blue chips," I've never said to buy them exclusively, or even mainly, "but blue chips can be duds as well." I DO say that though.
Disagree. Liquidity & transaction costs means that property IS for the long haul. Shares can be for either depending on whether you're an investor or a speculator.And why are you concerned if some blue chips go up and others go down in the short term? I'm tired of being told property is for the long haul whenever it doesn't look too bright in any particular region.
Let's be a little consistent and apply the same rules to both investments.
I agree, but you shouldn't panic about volatility of shares (just because you can see it) and remain serene, ignoring property volatility because your house price is not published daily.
If I might add:
The idea that "We, the sheeple" can't look after our own affairs is a malicious lie, perpetrated by everyone who want's to get their hands in our pockets.
I twice went to Manny Casimatis' (of Storm Financial) presentations and this supposed inability to control your own portfolio was the main point he hammered. If he could not convince his audience of this he could not get his hand in their pockets, and when they did sign up he really did pick their pockets. He was a very wealthy man for a while.
I acknowledge that those of you who are busy making a living will probably not have time to devote to the study, but you can still do some prelim stuff. Too late in life I realised that "making a living" interferes with "making money". Once you've been there for a while it can be far less time consuming than property. A genuine long term hold only has to look up the bank account to see if the div check has been deposited.
The idea that "We, the sheeple" can't look after our own affairs is a malicious lie, perpetrated by everyone who want's to get their hands in our pockets.
I twice went to Manny Casimatis' (of Storm Financial) presentations and this supposed inability to control your own portfolio was the main point he hammered. If he could not convince his audience of this he could not get his hand in their pockets, and when they did sign up he really did pick their pockets. He was a very wealthy man for a while.
I acknowledge that those of you who are busy making a living will probably not have time to devote to the study, but you can still do some prelim stuff. Too late in life I realised that "making a living" interferes with "making money". Once you've been there for a while it can be far less time consuming than property. A genuine long term hold only has to look up the bank account to see if the div check has been deposited.
What objective basis do you have for saying that?
And price history isn't very objective.
In the long term, macro and micro economic fundamentals dictate prices.
There's legitimate reasons why nab, westpac, and telstra are at their current price.
Individual stock picking is difficult because you can't fake it in the long run. Ideally, you need to know the macro and micro economic picture...the sector of each stock considered, background of board of directors, company strategic plan, credit rating, cash flow, balance sheet & PnL, the accounting tricks companies play to hide poor performance, union relationships, labor supply, key markets, sovereign risk, risk from competitors and change in govt policy.... it is like doing an internal audit and SWOT analysis of every company.
Once you screen companies via micro fundamentals, to preserve your capital in the short to medium term, you need to understand the global and national environment, and drives global capital flows, money supply and credit expansion.
You need to understand for instance :
- why commonwealth bank won't repeat its 100% growth since Feb09, if Australia's Gross National Income expands at 3%pa.
- the role of new products in Apple's 178% share price growth since march 09.
Few people have the time, energy, and background knowledge to do this well in their spare time. Most fund managers don't. Good stock brokers generally specialize in a sector, and understand the fundamentals well. The good ones make a study of the key executives in that sector, and could tell you how often they exercise, where their kids go to school, what their wives do in the spare time, whether they've been sick or had a lot of time off work recently.
The property market can't be influenced by one person like one company can. ABC Learning was a prime example.
Finally, keep in mind the chart below. It is from the original article Andrew_A's link discusses. Note that 25% of US stocks accounted for all the share market growth between 1983 and 2007.
Attachments
I don't disagree WW. You may have explained why I play with small miners.
There is no way I, an individual, can read what is in the public domain for BHP and get a competitive advantage to trade the stock. But I just might get lucky and read something others miss, about a junior miner. Your chances are improved because most of the money in the market is excluded from juniors.
You may also have explained the popularity of charting. Some people must trade and if funnymentals doesn't work then they must "invent God". If they just pick something that sounds good, they will be accused of gambling. By pointing to a chart they can defend themselves as being "scientific".
Just musings. LOL
There is no way I, an individual, can read what is in the public domain for BHP and get a competitive advantage to trade the stock. But I just might get lucky and read something others miss, about a junior miner. Your chances are improved because most of the money in the market is excluded from juniors.
You may also have explained the popularity of charting. Some people must trade and if funnymentals doesn't work then they must "invent God". If they just pick something that sounds good, they will be accused of gambling. By pointing to a chart they can defend themselves as being "scientific".
Just musings. LOL
Hmmm, maybe one or two of those were overpriced then and now represent "good value"...
For me, features like that act as a bit of a clue to fashion - things go in and out of fashion.
Does Westfield for example own any fewer shopping centres since then? Are they in serious danger of default on debt covenants? Are all their tenants actually going broke? So what has happened? A bit of recapitalisation (which makes them lower risk), a couple of years of lower divs while they take stock and a bit of fear around retail has made them cheaper than they were. How long is all that going to last? Can you afford to hang around that long? They still own some very nice real estate in absolutely premium locations. If you believe in location, location, location - they may yet do very well*.
In March last year I entered the ASX for the first time largely because I couldn't go past the compelling value of both ANZ and WES at the time. I also bought a few other shares to "diworsify" - I wish I didn't... stock picking is very worthwhile IMO when you can see a really compelling case.
* This is not advice and the author owns WDC - you get the drift...
