And what were the financial consequences to those auditors who did the audit on HIH and Enron?
Its not a perfect system, but its the best that we have. And its sufficient in the whole scheme of things.
What traits do investors have in common?
- Thread starter Bargain Hunter
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And what were the financial consequences to those auditors who did the audit on HIH and Enron?
Its not a perfect system, but its the best that we have. And its sufficient in the whole scheme of things.
Perfect? Who could even think it's passably safe though, IV?
I know: I employed every methodological tool you employ (assuming you're as much of a Buffett fan as I am), and got thoroughly clobbered over a 7-year period. Over that time I incrementally put in $180K, and at the end of it I got out $180K, just! That's a friggin' shellacking by anybody's measure, and I was chasing intrinsic value alone.
It didn't teach me that Buffett was wrong: It taught me that the Australian stock market was wrong!
It's right to invest in intrinsic value, but it's wrong to accept that Australian data is of adequate quality to do so.
This is my sole point: Enron was an American exception - HIH was an Australian norm.
Our bourse is too small and irrelevant to warrant world-wide opprobrium for its refusal to meet basic reporting best-practice, and consequently cannot ever be relied upon to deliver accurate data to the intrinsic valuist. (Is that a word?)
If you were advocating an intrinsic value investment strategy for buying US stocks I would say, go for it! Your percentages are better than sweet FA. But not here. Here it's speculation absolutely by default.
I say this simply to warn the acolytes. Stockmarket high-priests will have already paid their penance.
out of curiosity how did your intrinsic value estimates move during this time?
Did most of the damage occur during the GFC?
I ask this not to be 'cocky' but because i am always interested when it comes to this sought of thing.
One of the lessons i have learnt is that when the economy moves from growth to recession it can have a disproportinal effect on movements in intrinsic value because as you have stated estimates of intrinsic value have to be contain at least some quantitative measures. Its hard to see the durability effect of the variables that go into those quantitative measures given that australia has not really had a recession in 15 odd years.
In the current environment in australia this may be a good point to head for 'value investors'.
The period was around 1998 to 2004. I had roughly 6 positions from memory (NAB, CBA, Tabcorp, Aristocrat, Telstra, and one or two others I've forgotten, in roughly equal measure). The standout i.v. read to me back then was Aristocrat, throwing off free cash flow like froth from a champagne bottle, and showing an i.v. around twice the then share price, or so it seemed.
Until, when was it, 2002? Aristocrat's CFO suddenly and mysteriously resigned and the board soon admitted that they'd fraudulently concealed massive losses from their South American ventures.
Where the hell were the auditors and regulators, I asked myself in abject horror?
Anyway, I still came out well ahead in Aristocrat myself, but as you'd remember it all resulted in a class-action suit by their then more recent shareholders.
(Buffett I know would have cautioned to stay away from heavily government-regulated sectors, but that was not the problem Aristocrat faced so much back then. Of course, both Tabcorp and Aristocrat suffered dearly at the hand of government more recently with smoking bans in pubs, but that was long after my time in them, and they will no doubt suffer more greatly in the future thanks to Xenophon and the Greens I'm sure. I'm no longer though the agnostic on poker machines I was back then: Ive come to think they are dangerously addictive, and wouldn't invest in these companies now even if they did show outstanding i.v. to price ratios, which of course they don't.)
My emphasis was always on the quantitative side, although I did cursorily trace who was who on which boards back then. As regards the qualitative side, I think it was Sir Arvi Parbo who once said around that time that you could count the world-class CEOs in Australia on one hand.
In any event, observing each new episode of corporate shenanigans on these reporting shores, I ultimately came to the conclusion as stated at length above that the Australian stockmarket was a fool's errand, and took everything I had and went into property (wishing I'd done it from the outset).
End note: It was Noel Whittaker's ''Making Money Made Simple" that turned on the financial 'lights' for me in around '97, but it was also his emphasis on stocks vs property that led me astray. The wife and I still remember with a huge smile saving our very first $ 5,000 together around 15 years ago (just after I'd read Whittaker) and 'investing' it excitedly in a 3-month term deposit, to then take it out with about $250 interest and investing it all in the float of National Mutual, which gave us a 20% return (as I recall, in just another 3 months or so). Happy days, but a in retrospect, a major strategic wealth-building mistake to go into shares rather than property!
It certainly is no fun following the Aussie stock market. No matter what fundamentals most Australian Companies hold, the ASX just follows the damned US market. Most of the volatility in the All Ords occurs in the first 15 mins of market opening as it mirros the US sentiment overnight ,and then hardly anything happens the rest of the day!
thanks belbo some interesting points raised to reflect upon.
A couple of further issues:
(a) did you ever consider looking at director purchases when the share price is dropping. This is not a guaranteed money winner, but it does provide some level of comfort, if the directors are buying heavily as the price is going down, then at least they believe in their own story. If they are absent, then again ask oneself why?
(b) could you be taking your success/failure based on pricing, rather than value. You highlight residential property vs shares, but if one fast forwards 10 years, one might see the opposite from this point in time. Things move in cycles, including the price one is prepared to pay for an investable asset.
(c) your post is particularly relevant in the current environment, where there are potentially a number of value traps by just screening for 'value' based on current financial/economic data. (ie future value will be determined by future financial/economic data, not todays data)
anyway thanks again.
The problem with Noel (I get his email newsletter) is he seems heavily into super and stocks - and not much on property from what I can tell.
So, I reckon his info is probably geared towards yer average person with little/no investing get up and go.
He made his start in real estate and you should see where he lives
.I don't think you can say he isn't "much on property".
He made his start in real estate and you should see where he lives
I don't think you can say he isn't "much on property".
Based on the content of his newsletters, I'd say I can.
How he started and where he lives doesn't mean the newsletter will be slanted that way (property).
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I'm sure he has.
Based on this yer reckon he'd put more content about r/e investing in the newsletter?
Don't get me wrong; I'm a big Noel fan...was just pointing out the newsletter trend, is all.
I don't know why he doesn't put more in his newsletter, but he makes zilch, zero, zip from selling the idea of buying houses. There is no commission for him in doing that.
However... selling financial products...
Over 30 years, I've gone to several financial advisers, and not once have we been advised to buy another house. It has always been advice to buy into some finance product which, funnily enough, has a commission and a trailing fee.
But maybe he really doesn't think there is any growth left in property...
However... selling financial products...
Over 30 years, I've gone to several financial advisers, and not once have we been advised to buy another house. It has always been advice to buy into some finance product which, funnily enough, has a commission and a trailing fee.
But maybe he really doesn't think there is any growth left in property...
Noel's emphasis I think is perhaps a reflection of his own age and that of his readers. For him it seems to be about predictable yeild, low gearing, and safety. Nothing wrong with that, but a bit staid for my own crap-shooting, "who wants to bet on those flies climbing up that wall?", investing credo. I think he's a great inspiration, but it took me literally years to separate inspiration from deeper strategic thinking, and so start doing some of my own.
IV, I did also look at what directors bought and sold, but never forensically. That's a qualititative metric too, in a way, but I think it reinforces my position for skepticism. I might not have given enough time to the market too, true, but thankfully I did escape the GFC-effect insodoing. That was just dumb luck though: I didn't see the GFC coming (or, more accurately, wasn't looking). As for future versus present value, my approach was always only ever the evaluation of reduced present value of future returns per the Aust 10yr bond yld, so hardly radical. I think I stuck to the Buffett book pretty religiousy there, and came unstuck because of that text not being applicable to the Aust stocks scene. Have you ever seriously entertained that idea, IV?
IV, I did also look at what directors bought and sold, but never forensically. That's a qualititative metric too, in a way, but I think it reinforces my position for skepticism. I might not have given enough time to the market too, true, but thankfully I did escape the GFC-effect insodoing. That was just dumb luck though: I didn't see the GFC coming (or, more accurately, wasn't looking). As for future versus present value, my approach was always only ever the evaluation of reduced present value of future returns per the Aust 10yr bond yld, so hardly radical. I think I stuck to the Buffett book pretty religiousy there, and came unstuck because of that text not being applicable to the Aust stocks scene. Have you ever seriously entertained that idea, IV?
There are actually very very very few buffett type companies in the australian stock market, in fact only 3 come to mind: CSL, COH and CPU.
Why?
because these are potential buy and hold stocks. So long as the initial buy in price is made at intelligent prices, then its possible to make a case for buy and hold.
All resourse companies are excluded because they are cyclical, some more than others, the banks as well.
However buffett's valuation techniques can still be applied in the context of the australian market (possibly better than the US market because the australian market is not so sophisticated), so long as one is prepared to value companies at a point in time and track the movment of valuation relative to share price (essentially a 4 play evolving matrix). Because the underlying companies are not buffett type companies, wide diversification is suggested.
This is the strategy that i use and i currently hold positions in around 30 australian stocks (apart from the international portfolio), some will hopefully work out, some wont.
To 'win' the game, i need to be able to control my losses on those that dont.
I have no idea what this means, but it does sound like you're as tapped out for rustling up any more investment lucre as I am.
Damn, does this investing game suck the juice out of the old bank account oranges, eh?
(By the way though, I heard somewhere that Player's sitting on a pile of lazy dosh. Maybe we should lean on him for a quick JV turn-around-and-profit; nudge, nudge?)
In property, apart from many things already mentioned through the thread , guts comes to my mind.
It does take a lot of guts especially at the beginning , to buy 2 houses instead of 1 or 3 instead of 2 , more . Really it's a lot of responsibility , manageability , lots can go wrong to turn it all belly up on you and often it'd hardly take anything at all , just a ripple at certain times.
Cheers
It does take a lot of guts especially at the beginning , to buy 2 houses instead of 1 or 3 instead of 2 , more . Really it's a lot of responsibility , manageability , lots can go wrong to turn it all belly up on you and often it'd hardly take anything at all , just a ripple at certain times.
Cheers
What he's saying is that stocks are cheap now because investors are demanding a much higher risk premium to them.
In contrast - property is not being risked appropriately as even if you buy at a 6% yield you're effectively using a WACC of 6% to risk your properties. When I look at big businesses much safer than any house you could ever buy (eg BHP, Woolworths, Wesfarmers), I'd have to use at least a 9-10% WACC. For a house to command a 6% WACC reflects the misguided Australian assumption (as Americans/Irish were once misguided) that houses were safe as bricks.
I'll give you another example. Investors are sourcing 3% debt funding to construct several of these LNG projects in Browse, Gladstone etc. But even then our rule is to use 11% WACC.
So in some respects, I agree with Intrinsic Value. If you take a long-term view, chances are equities will be a safer investment than houses due to the risk premium built in to it. The problem with equities is the near-term volatility does not permit to much rewards in the foreseeable future - there's probably anywhere between 12-36 months to go before Europe gets out of its mess and the US stabilises. Ahhh it's good to be informed.
Only 12-36 months? I hope so! With the Greece 1yr WACC at 72% (last I heard) and even the French banking system now looking seriously shaky, you'd want to be downright divinely-informed to play the market these days, I reckon. (As an aside, I do find it ironic that Germany now essentially does rule Europe.)
But this all plays into IV's sleight of hand: Instead of defending the validity of intrinsic value analysis in the Aust stock market context as challenged to do, he resorted to challenging the adequacy of risk weighting in property investing instead. Not to the point, see?
