Archive through April 02, 2008

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lafee

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Post Number: 815
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Monday, March 31, 2008 - 12:13 pm:

This is a binary option that IG is offering ATM.

$42 to buy a contract that will pay out $1000 today IF ASX 200 Cash settles between 5276 and 5251.

Who here thinks this is a good deal?

Cheers Lafee

(Message edited by LAFEE on March 31, 2008)

Don't ask an academic if what he does is relevant

ody

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Monday, March 31, 2008 - 12:59 pm:

RUDY: MARKET DIRECTION

Yes, what you say sounds exactly right to me. The bandaids won't have the power, unless something TRULY positive happens, to send the market up on any ongoing basis. But they do seem to act as some barrier against it going down too much, and Eugenio, in his bet with you, has some room to play with: 5000 seems to me a cunning level, as the 4800 that has so often been mentioned was too low an estimate even when things were "at their worst". I use the inverted commas because I think that economically they are probably not one iota better than before: it is purely the manipulation, the seeming "safety" provided by the Fed (and the Bush measure in the background), that has given people the feeling that they will be protected from ANY danger, by a Fed that will spend ANY amount of money to ensure such protection. After all, if their own money gets used up, the Americans can probably borrow more elsewhere!

mrlunch

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Monday, March 31, 2008 - 01:06 pm:

Sound interesting Lafee - clearly looks like a bad deal today but if they're offering things like that maybe there will be, on occasion, a very tempting offer?

lafee

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Monday, March 31, 2008 - 01:13 pm:

Mr Lunch,

Yes, you would only need one winner every now and then to make it profitable. With the speed of the current market these contracts seem undervalued.

To me anyway.

Cheers Lafee

Don't ask an academic if what he does is relevant

resillent1

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Post Number: 409
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Monday, March 31, 2008 - 01:13 pm:

G’day Rudy

Thanks for your post.

Nothing could be truer than strategies needing to meet circumstances. Open profit draw down in my strategy will be very large at times; also the potential for loss of existing capital is great if I make poor initial purchase decisions. Time, capital and psychology all needs to be in tune with a strategy for it to work.

This suits me. I think I have enough time and capital to make it work if I’m any good.
But mainly it suits my psychology. I have had enough of betting on prices. Doing it well, with controlled risk, is boring and time consuming. I also lack a sense of fulfilment in primarily making my money from what others loose. I want to make long term productive investments. In the stock market this predominantly means long term holdings whilst some of your earning entitlements are retained and re-invested or via company raisings.

With respect to “money”. For me I see this as a potential risk. During my time horizon I cannot rule out a systemic failure of “fiat currencies”. If it did happen I don’t know if I would be alert or smart enough to see it coming. A strategy that does not leave me exposed to only financial assets covers this risk.

As for your strategy, I’m sure its well thought out and suits you – my only question is for how long can you, or will you want to put in the effort to be effective at it. What happens if something happens to the most important part of your strategy – You?

ody

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Monday, March 31, 2008 - 01:37 pm:

RUDY AND RESILLENT: STRATEGIES

I cannot refrain from joining your interesting discussion, even if only briefly. As you will be aware, Resillent, Rudy and I are in much the same position, and most of what he writes about his own strategy is also applicable to me. That is due chiefly to similar circumstances, but not - I think - just that. It is probably also a matter of our inherent sense of preservation, 'what we are willing to put up with', etc. For example, I could have pulled out of the market IN PART on 14 December and still have adopted your "Buffett style" approach to TGR (Tassal) which you and I both admire. Indeed, though I take Rudy's point about his not wanting to risk a 20% fall in his portfolio, I think that he, too, actually takes this principle yet further: I feel (but he can contradict me) that he will not accept a fall of 20% on ANY stock under ANY circumstance if he can avoid doing so.

Whether or not this is true for Rudy as well, it is certainly true in my own case. When I saw this bear market looming - very decisively turning our way - on 14 December (the last of the "good" days for a seller of a large portfolio), I was simply not willing to subject ANY stock to the risk that in theory could hit ALL of them - even though it probably wouldn't (and didn't). But that beautiful TGR has nevertheless gone down a lot more than I would have been happy with, so I don't regret selling it (or any stock, really, for a clean break gives peace of mind).

My point here is that I don't think it is only our difference in age and circumstances that makes your approach appealing to you: if I compare you and me, I sense it is also a matter of a different character/temperament. More so than Rudy (I feel quite sure) I am a very impatient person, and thus would not, even at a much younger age, have wanted to sit through a significant decline in the price of even ONE stock, ever, and to the extent that I have done it, I have never enjoyed it or found a subsequent recovery sufficient compensation not to hate living through that abominable interim fall! So this means that INTRINSICALLY - quite apart from how old I am and how much money I own - the method that Rudy and I pursue in such startlingly similar fashion - i.e. in the market when it goes up for some considerable period, and out of it if it goes down (even if for a shorter period!) - suits me down to the ground.

As the GENERAL risk for the market decreases on BOTH T/A and F/A grounds I am always potentially interested in investment, and certainly WOULD invest - and substantially - if both nicely coincided, with a market on the up in recovery mode. That means that March-May 2003 was just the sort of period to suit me, and several subsequent periods as well, as the market was essentially in bull mode. Now, it remains - still - in bear mode (though of late less so, in T/A terms, but certainly fundamentally). So I am (tolerably) happy not to take part. Psychologically, I am an absolute hoarder, so hang on to the money I obtain, and usually buy in a mean spirit (no David Jones clothes for me!). I absolutely loathe losing money - and in THAT sense I am a Buffett follower! But not in sitting on stocks through thick and thin. In that regard I play the market only when it is in a general winning mode, and try to be outside it if it is in losing mode (or going sideways). This does NOT mean, however, that I feel that your approach is wrong for YOU - on the contrary, I get the strong sense that it suits you. And where you and I are I think totally agreed is that winning or losing depends for at least 90% on adopting an approach that truly suits the individual and can be successfully pursued by that person. Deviation from what is the "true" mode of that person is likely to get him or her into trouble!

ody

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Monday, March 31, 2008 - 02:03 pm:

Resillent:

Sorry I was writing my post at the time your latest one appeared, so I was responding to what you and Rudy had written earlier.

Indeed: what DOES happen if something happens to the investor that makes him or her incapable of pursuing the strategy adopted? A very good point. I can certainly feel already, in any case, that I have become somewhat less ambitious as an investor. That is simply due to having greatly "grown" our capital during the bull market, and our being able to live with comfort for the rest of our lives even if we lived on deposits only. I would not be happy with that either, though, for eventually capital would get reduced, and although I am no longer dead-keen to make a lot, I don't want to get poorer either. So, for as long as I can, I shall make sure that that will not happen. Given my circumstances, it will probably be quite easy to ensure that it won't, and still to make a bit. And if the market turns good again, then it may be more than a bit, though a difference for me, now, is that I might invest e.g. half of capital from our super fund in the market rather than up to 90% (as I was willing to do even in early 2007).

The chief problem would be: what happens if I intellectually or otherwise get disabled, or die before my wife, so that the investor is no longer able to drive the portfolio? Well, in that case the decision is really largely up to my wife. I know that she would and could not invest in the way that I can, so she would do something very conservative - e.g. just live on deposits, or buy herself - from part of the money, anyway - a guaranteed annuity or something similar. That is really up to her, as if I am incapacitated I cannot and should not decide what is the best approach for the person who is not.

Meanwhile I take childish pride in at the least keeping capital "up to scratch", first of all for my wife, and also for the children - who don't need it, and would pay some tax on what they would inherit once my wife and I are both gone, but not much. Noone is actually ASKING me to try and make capital grow, overall, or at least to preserve it in real terms: it is purely a matter of my own ambition not to lose money. If I have nineteen stocks going well for me and one that is lousy, it is THAT stock which I concentrate on, as I always aim for strength and hate weaknesses and defects in all things. This is purely a matter of psychology, not of financial need.

It's a matter of "wanting to achieve", I suppose. That is also why I am working hard on my book, and look like meeting the deadline. It won't make money for me - it's far too esoteric for that. Only a few people will read it, but I think it will be of interest/value to those: otherwise I wouldn't do the job. But I don't need to do it for "status" reasons either, so in essence I suppose I need to prove to myself, constantly, that I "can do" things that matter to me.

rdumas

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Monday, March 31, 2008 - 02:44 pm:

Hi Resillent1,

Re your question: my only question is for how long can you, or will you want to put in the effort to be effective at it. What happens if something happens to the most important part of your strategy – You?

Firstly by nature any interest that I have tends to stay with me for many years. For example I lived on peanut butter sandwiches through the whole of high school before getting sick of them

.

Another example is my interest in punting on the horses which kept my interest for around 15 years. It was my interest in the share market which overtook the interest in the punting side of things (as it was a much safer and more manageable mechanism for producing wealth) that caused my original interest in the punting to wain significantly. So by nature I do tend to hang onto things that work for me.

God willing the longer I retain my interest in the share market the bigger the buffer I build up so that in my later years I can afford to let things run on automatic. There is also a tendency in later years to slow down on spending other than medical bills (funeral bills are a 'once off'). Oil for the wheel chair is pretty cheap and living on baby food eliminates the need to buy expensive crowns and bridges so teeth are not a major problem.

In the event of my departure to greener pastures, as we own our own home outright it is a bit cheaper for an old single person to live than for an old couple. Even now I think that my wife could live quite comfortably if she either just put the money into mainly interest bearing deposits or joined a standard superannuation fund so I don't think that it would be a problem.

I guess that the biggest risk is if I became permanently disabled. That tends to give you even bigger medical expenses but other than that it also tends to reduce the need to spend money on other things. If things were really bad I guess a bullet or a can of rat poison is pretty cheap.

rdumas

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Monday, March 31, 2008 - 03:02 pm:

Hi Ody,

You may recall when I first started posting on IC that my intention at that time had been to change my investment style from that of a short term trader to that of a long term investor. As time went on I discovered that I was successful in developing an interest in fundamentals whilst still retaining an avid interest in TA.

I could really see over the months that I was making the transition that I desired but found that there was one aspect of long term investing that I just could not be comfortable with. The idea of allowing an investment in a stock to lose value beyond a reasonable amount was just so unthinkable for me that I finally had to admit that I could never really be a long term investor in its purest form.

For that reason I changed my investment objectives to one that I felt more in tune with which in the end was that of a medium term investor. This allowed me to follow my natural inclination to move out of the market or a stock if I could see that my portfolio or stock was at risk of a significant devaluation. As time went on I found my self adopting a similar style of investing to yours.

dug

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Tuesday, April 01, 2008 - 02:37 pm:

Like you say rudy&ody it's all in the timing and individual objectives re resillient's plot.

TGR for example.What if one were a long term holder of significant numbers of this Illiquid share BUT had bought 2/3 years ago for a $1.Yes it went to $4 and now is at $2ish but is that really a Loss to a Long Term Holder who is still in Profit 100% in 2 years?
One could see it as a Capital Loss,no question but if you were wanting to go set and forget,have a Life outside of the Share Market woes and shenanigans like resillient has outlined Would you really be a Loser to have Paper Lost perhaps only "temporarily" in regards to a Ten Year Time Frame?

Resillient raised Questions about Capital Gains Tax effects.On a basis of 50% Tax Rate one would have paid out what? Sell at $4,Bought at $1 pay 50% on $1.50=75cents ergo missing out on Selling at $4 is really cash wise clear a Sale at $3.25 with the Paper Loss only at $2 now,??whatever.

Do you follow?Rudy I always thought Mid Term was defined as more 2-3 Years not months.Now I'm fully aware of yours and Ody's Method and Circumstances like you don't pay CGT.
But I reckon for sure Ody is going to be back into the Market when his book is all done and dusted.I can't read Ody without seeing a Lover of the Share Market Game.

and you,rudy What are you going to do if the Market does NOT return into BULL Pure'n'Simple.It could be YEARS,if EVER for the Market to return to such a clearly defined Set Up of 2003/06.
Oh it mightn't BEAR for ever but it sure can consolidate go sideways for Years.

Can I assume,rudy that you require to take some Gains out of the Market to Live or are you dusting off d'blanket to put over ya legs in dat Ol' Rocking Chair reading Interest Rate plays?

regards,
jr

Even 'til Jaded.

Dig for the sake of it.

ody

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Post Number: 2272
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Tuesday, April 01, 2008 - 03:05 pm:

Hi Dug - MARKET TIMING ETC.

I think what you say about Resillient and TGR makes excellent sense, and the tax factor, for sure, should not be ignored in a case like this. I also think that TGR is the kind of stock that, for a person who is REALLY a long-term holder may well amply pay off. It still remains difficult, though, as to hold determinedly for a very long time is not only testing, but might in some cases prove very much a losing game. I should not think so in TGR's case - but both Resillient and I had Credit Corp, and I'd be less likely to trust that for the longer run (Resillient, would YOU??).

In a way you are right, dug, that I shall probably go back into the market at some point and can indeed feel the lure - but it is not just the book that is delaying me, though I must confess that at this moment I feel that combining the two things together would probably be too stressful: I'd need to feel quite sure WHICH shares to buy, and that would take me a lot of time to sort out. Also, I think there is still a threat to the index as a whole, though perhaps not now so strongly as before (it really DOES seem to be felt that the Fed etc. will buy out anyone and anything anyway, and they probably would, even if it meant borrowing from other countries).

In Australia I most like companies LEAST related to the credit crunch, in whatever form, and that means avoiding financials and anything similarly vulnerable. I am also wary of resources stocks right now, but do like the companies that service the mining sector (or energy), and those that service agricultural stocks. I don't see too many "outright" agricultural stocks (like AWB) that I like, though TGR is one (but a long way down from its top).

Not altogether easy, all in all. Anyway, I feel very confident Resillient will handle his situation, for he does seem to me to have the required patience, yet would be quick enough not to let himself be ruined by a stock that truly does not deserve forbearance.

rdumas

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Tuesday, April 01, 2008 - 03:07 pm:

Hi Dug,

At current interest rates I don't really need to be in the share market to live a reasonably comfortable life but like Ody I do like the challenge of being in the market. Once I feel comfortable that a real base (bottom) has been established I will go in again because there will be some companies that will do okay even during a bear market.

As I mentioned in past posts, my biggest priority is not to have a large reduction in my capital base as it is too small for me to have that luxury. It is for that reason that I have to apply a safety first strategy before going whole heartedly into the market again.

I see bear markets in different stages. There is the early stage where there are still a large number of unknowns and the market is purely sentiment driven and made worse by hedge funds who are using the fear/greed in the market to meet their own ends. During this time the market is too volatile and unknowable to make sensible selections which are safe for months on end.

Then there is the next stage where the extent of the damage has been more clearly identified and valued and people know that it will just take time to work itself out of the system. It is during this period that there is less fear in the market and hence the volatility reduces even though in the main companies will have subdued growth for a while. For that reason it is during these times that the market starts to be based more on fundamentals and sensible parameters that really affect the ability of a company to outperform its peers.

It's a bit like Maslow and his hierarchy of needs. You can see when a group is starting to get involved in the next level up. You don't have to wait until they are entirely in the next level before you make your move but you need to know that they have truly got hold of it.

At present even though there is a greater degree of optimism in the market at present there is still far too many problems the extent of which have still not been properly valued. This sets up the scenario where you can get a rally which later will fail because of the latest emergence of the next 'yet to be properly valued problem'.

Most analysts have a feel for the type of problems that they face but they still have no real idea about the extent of these problems and who is infected. Hence we are still in that first phase of the bear market that I mentioned above.

ody

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