Archive through March 31, 2008

Chart Forum » Hilarius' Hall Of Fame » Our Daily Bread » Archive through March 31, 2008

«« « Previous Next » »»

Author

Message

rdumas

Member

Post Number: 1274
Registered: 11-2006

Rating: N/A
Votes: 0


Saturday, March 29, 2008 - 08:27 am:

Hi Resillent1,

'Has a positive macro fundamental perspective always been a filter for your investment strategy? I don't recall the big picture fundamentals being part of the approach you posted a few months ago'

It's a fair enough question. The simple answer is no it wasn't. I have spent much time going through my investment strategies in the past so I won't bore people by going through them again. For anyone who is interested they are in the attached Word document.

investing in the market rudy style.doc (165.9 k)

In the above document I stressed the importance of Market Risk to an investor using my strategies. The following extract came out of that document:

===============================================================
Market Risk

Whilst portfolio construction attempts to minimise individual stock risk, psychological trauma and gives the investor the ability to increase the stop loss levels on individual stocks (thus allowing investors to have stocks that can feely swing within normal ranges) it does very little in terms of the effect of market risk. Market risk in fact now becomes the greatest risk to an investor because in a major correction the great majority of stocks will be affected.

================================================================

I also have mentioned on a number of occasions that I was on an ongoing reconstruction of my investment psychology from that of a short term trader to a medium term investor. For anyone who has been through this process it does require a major overhaul of one's thinking processes. This has required a pretty steep learning curve on every aspect of medium term investing. Prior to this conscious move I had never studied or even been interested in company fundamentals. To be perfectly honest economics as a subject used to totally bore me in the past.

The unfolding events of the US economic crisis and its effect on the global economy has been part of my ongoing learning curve. New threats have appeared on the horizon of my learning curve which I believe required me to gain a better understanding of the macro economic picture. As with all other aspects of my growth I have attacked this need with all the effort that I can muster. I have to admit that I no longer find economics boring. I find the current period very fascinating as reserve banks globally attempt to overcome problems the complexity of which they have never had to face before.

I have learnt much over the last six months and no doubt will continue to do so which I believe will help me in my efforts to become a better medium term investor.

I hope that answers your question.

rdumas

Member

Post Number: 1275
Registered: 11-2006

Rating: N/A
Votes: 0


Saturday, March 29, 2008 - 08:37 am:

Hi msparks,

Most of the stuff that I have read basically says that the government doesn't guarantee depositors funds in banks. They write all sorts of stuff about how solid the banks are, how stringently regulated they are and how they have run worst case scenarios and found that the banks could come through with flying colours.

In my opinion all of the above are just weasel words that give them the escape path if its needed. The reality is that if one of the big four banks crashed the government of the day could not and would not stand by and say 'tough luck' because as we have seen from the happenings in the US over the last few months the whole economy revolves around the viability of the banks.

resillent1

Member

Post Number: 406
Registered: 10-2006

Rating: N/A
Votes: 0


Saturday, March 29, 2008 - 09:02 am:

Rudy

Thanks for your response. I hope you didn't take offence at the question. Not all progressions are conscious; sometimes we just evolve without realising it. Just wanted to shine a light on a change that I had noticed, but it seems you were already very aware of it.

Now be very careful, they have lots of names for those of us that find economics interesting

Cheers

p.s I'm considering lots of changes at the moment to the “investing in the market resilient style”. Its raining outside, so I might get around to putting together a post today about the changes and then you will get your chance for critical review.

rdumas

Member

Post Number: 1276
Registered: 11-2006

Rating: N/A
Votes: 0


Saturday, March 29, 2008 - 10:33 am:

Hi Resillent1,

There was absolutely no offense taken. It was a fair observation and comment.

I look forward to your upcoming post as you always give me other ways of looking at things.

resillent1

Member

Post Number: 407
Registered: 10-2006

Rating: N/A
Votes: 0


Saturday, March 29, 2008 - 12:10 pm:

Strategy Review

I’ve been having a bit of a big picture review of things and it is leading me to some fundamental changes in how I create and maintain wealth.

To date I have mainly made money by trading stock prices. There has been some underlying value creation from the stocks themselves over the period I have held them, but that in reality that has been secondary, my primary consideration has been changes is stock prices rather than changes in underlying value.

My intention is to stop trading prices and start investing in underlying value creation of the businesses.

My thoughts that underlie this change:

Trading allows for fast wealth creation however I have lost my desire to create wealth quickly. I can now meat my needs with a slower rate of growth.
Beyond the underlying value creation of businesses, trading stock prices is a less than zero sum game. Despite retaining skills and experience that allowed me to be successful at the game in the past, without the required desire, I imagine that I could quickly find myself on the other side.

Trading prices requires observing and responding to the market on its terms. I want to reorientate my life to my tune – not the markets. I want passive investments that allow for more freedom.

I don’t see “money” as anything real, so have difficulties in justifying it dominating my assets at any one time. A concentration in cash inevitably happens when “trading prices” at times when the supposed “safety” of cash is most likely to be affected by a paradigm shift. Long term its the worst performing asset class.

I expect at least one paradigm shift in the value of “money” as the claims people think they have against future production (based on financially defined stores of value) seem to me to far outweigh the physical production capacity. With ageing demographics something has to give. People have tickets for many pies but there is only going to be one to slice up. Aggregate consumption has to equal aggregate production.

My concerns for the physical economy are far less than for notional “financial balances”. I think central banks have learnt lots about keeping physical economies growing and they are showing by their actions that this rather than the “balances of stored financial value” are their primary concern. My main concern for the physical economy is the environment. Ageing populations within some sovereign states are causing problems but the world at large has no problem from ageing just yet if we can get the politics right. The real question is how much more growth is environmentally sustainable or have we already passed our limit.

The very long-term investment record of shares is superior to investments in cash, gold, commodities or real estate. This makes sense to me, as it is the only way to invest in intellectual capacity. My time frame is hopefully still something like 50 years so I don’t need diversification between the asset classes to address shorter run fluctuations. My concentration will be solely on investing in businesses to access the intellectual capacity.

Defining my portion of the pie in the future by a “fiat currency balance” or a “mark to market” equity price today' seems to me to be next to meaningless. A lot can happen between now and then and I don’t want to have to be attentive to every detail along the way to make the right “price-trading” move.

I am going to invest in stocks with enduring demand for their product or services, at times when their future earning potential is not overvalued due to cycles, speculation and momentum of prices. I am going to hold them for as long as the reason to purchase remains valid. when I sell them I going to look for an alternative company at the right price. Cash will only be a temporary store until the right investment is found.

Measurement of my success will be current earnings as a ratio to current average national incomes. Through investing in companies that retain and manage some of my earnings well, I hope to see this measure increase. Distortions through fiat currency and mark to market will be eliminated by the new measure.

Did I mention bloody tax? Still have to pay tax for the next couple of decades. So there are tax advantages through compounding of unrealised capital gains and investments through retained earnings.

One mistake I have already made during this process of change was not totally clearing the decks first. I've had a foot in each camp and have now decided that is not possible.

To the extent that I ever feel that I want to trade prices again in the future, It will be after I have bedded down this investment strategy and will be with a fund sized so that I can "enjoy" taking unneccessary risks. I'm likely to limit it to other markets such as currency or futures (or perhaps stocks that I can't fundamentally understand). Predominantly the share market for me will be reserved for investing in businesses.

I reckon that the captain if he read this would think that I have just come up with the best landlubber excuse that he has ever seen. His critical review as well as anybody else’s would be gratefully received at this point.

Cheers

dug

Member

Post Number: 3013
Registered: 07-2005

Rating: N/A
Votes: 0


Saturday, March 29, 2008 - 12:51 pm:

resillent1 wrote on Saturday, March 29, 2008 - 01:10 pm:
My intention is to stop trading prices and start investing in underlying value creation of the businesses.

Are you going to find this mainly in Blue Chips as per Star Doctor Stocks or will you search through some Emergers?

resillent1 wrote on Saturday, March 29, 2008 - 10:02 am:
My concentration will be solely on investing in businesses to access the intellectual capacity.

Ditto

resillent1 wrote on Saturday, March 29, 2008 - 01:10 pm:
My time frame is hopefully still something like 50 years

This allows for a significant Emerger portion to a Portfolio?

resillent1 wrote on Saturday, March 29, 2008 - 01:10 pm:
advantages through compounding of unrealised capital gains and investments through retained earnings.

This is NOT alluding to getting on to a Dividend Stream as major criteria?

Say it ain't so resillent1 that you're going over to the Old Man Wisdom of If it ain't Top 100 it's a Dud.
Like you're going to Expand out from your Fish Farm Position and not buy mainly Banks or Insurance Companies.

cheers,
jr

Even 'til Jaded.

Dig for the sake of it.

resillent1

Member

Post Number: 408
Registered: 10-2006

Rating: N/A
Votes: 0


Saturday, March 29, 2008 - 01:08 pm:

Dug

I ain't got the mental capacity to understand the big fella's very well. So (without ruling anything out) I do expect that most investments will be smaller companies. Mind you something like WOW at the right price would get me pretty interested.

Smaller companies have a better scale opportunity for my investment horizon and generally I have found them to be more often in the fair value range.

Your last point is the opposite of my intentions. For me it's all about high-retained earnings that can be ploughed back in whilst still maintaining margins and good ROE.

Cheers

rederob

Member

Post Number: 2317
Registered: 10-2002

Rating: N/A
Votes: 0


Saturday, March 29, 2008 - 07:00 pm:

Ody
Some weeks back I read you were to be more a spectator than contributor, and now I find myself reading your copious contributions (along with rudy and the resillient 1).
I only ask, "Where is your resolve?"

Moving on....

Although I think there is a lot more downside to the allords in months ahead, I think also that the US market will succumb quicker.
The US housing market allowed the average citizen a degree of debt spending that would make the average Australian green with envy.
Hopefully, we will all see the folly of debt and revert more to a savings mentality.
US house prices are destined to decline substantially - market specialists suggesting at least another 15% on average over the next year.
This is important because while the subprime market has flavoured the present financial malaise of US institutions, there remains many millions of home buyers who borrowed on supposedly safe grounds but now find their house values less than their mortgages.
A natural consequence will be a further tightening of lending, greater numbers of foreclosures, and a cycle of demoralisation that will stultify US consumerism.
The extent that Australia will take a lead from Wall Street is moot in the years ahead.
As Charlie has noted, the allords has suffered twice the percentage loss of our allords so far this year.
I believe that will change.
But does it mean, ipso facto, that there is already a disconnection between our respective markets?
I think so, on fundamental grounds.
I think so because our economy is in better shape, our dollar is strong, and our raw materials are in demand at unprecedented levels.

I will quickly close now instead of rambling on.
My strategy going forward is "to wait".
My trades until October will be completely opportunistic, infrequent, and small$$$.

eblode

Member

Post Number: 720
Registered: 11-2002

Rating: N/A
Votes: 0


Sunday, March 30, 2008 - 01:50 pm:

Rederob,
Great to hear your views again on this site. It's been too long.
I personally believe the worst is over and the market will be recovering in this next quarter. When the FED rescued Bear Stearns that was the end of our low period. It delivered a mortal blow to the Bears. Banks will never hit those lows again and in 4 months we shall be heading north. I would like to bet Rudy on that.
Eugenio

rdumas

Member

Post Number: 1277
Registered: 11-2006

Rating: N/A
Votes: 0


Sunday, March 30, 2008 - 05:02 pm:

Hi Eugenio,

Your bet is not definitive enough for me mate. The market heads north every 2 or 3 days so I wouldn't take that bet.

I would be prepared to bet that by the end of June 2008 it will still be below the close on the 11th December 2007 which was 6738. If you are happy with that bet, you're on.

(Message edited by rdumas on March 30, 2008)

eblode

Member

Post Number: 721
Registered: 11-2002

Rating: N/A
Votes: 0


Sunday, March 30, 2008 - 06:05 pm:

Rudy,
You clever roguel.
No, the bet is that the all ords will not be CLOSING at any time below 5000 for this forthcoming quarter. I'm so confident that the FED will stop the Bears cold in their tracks this quarter that I'll even give you 2 to 1 odds. TWo beers vs your bottle of Southern Comfort
This quarter the all Ords will never close below 5000 from April to June 2008.
That's the bet! C'mon in ....sucker.

Eugenio

rdumas

Member

Post Number: 1278
Registered: 11-2006

Rating: N/A
Votes: 0


Sunday, March 30, 2008 - 06:36 pm:

Hi Eugenio,

Well, I've been called a lot of things before but never a roguel. Is that a Russian rogue?

Ahh! So you are already getting cold feet. You no longer think that the market will go north but would rather take a much more difficult bet of whether it will break previous lows.

As I think that your new bet is an even money chance, I hardly think that two bottles of beer versus one bottle of Southern Comfort equates to odds of 2 to 1. How about giving me real 2 to 1 odds. If I win I get 2 bottles of S&C. If you win you get 1 bottle of S&C. If you don't like S&C you can nominate a drink that is equal value to a bottle of S&C.

eblode

Member

Post Number: 722
Registered: 11-2002

Rating: N/A
Votes: 0


Sunday, March 30, 2008 - 07:07 pm:

Yes Rudy,
You are my man!
We have a bet. The market will not CLOSE below 5000 during the next quarter is my bet. Uncle Sam isn't going to let me down.lol And the FED is going to subsidize the whole party.

eugenio