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Buy Worst sell Best!

Discussion in 'Investing Strategies' started by Johny_come_lately, 9th Aug, 2009.

  1. Johny_come_lately

    Johny_come_lately Well-Known Member

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    I am going to do an experiment. With my (small) tax return, I am going to buy an index of the Worst performing asset. I wil re-evaluate it every 3 months. If at that point it is not underperforming, I will sell that asset and buy the index of the new underperformer.

    Performance is not based on return alone. It is also linked to average return and volativity. I won't try to compare, say, cash ret. to share ret.

    I recon that 5 years will be good for a play.


    Yes!, I know. I have too much time on my hands.


    Cheers, Johny.
     
  2. Johny_come_lately

    Johny_come_lately Well-Known Member

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    1'st Step

    All things considering, property trusts have taken a hammering. Some are down 70%. So while I have a negitive veiw on property, my game plan says buy.

    To prevent loss from a trust collapse, I will use a index fund. Vanguard have a property index fund, but it costs too much to buy in. Fortunately Perpetual have a platform that only needs $2000. But, even better, you can start with $1000 and a monthly payment of $100.

    I'll keep you posted.




    Cheers, Johny.
     
  3. BanjoSmyth

    BanjoSmyth Member

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    Hey mate

    Very Contrary!!

    There is a great quote by Warren Buffet that goes something like

    "the the stock market is the only place where a customer will run away from a bargain"

    Suits this thread - I think you may be surprised by the results :)
     
    Last edited by a moderator: 3rd Sep, 2009
  4. AsxBroker

    AsxBroker Well-Known Member

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    Vanguard will let you invest with as little as $5000, total ongoing cost 0.9% http://www.vanguard.com.au/personal_investors/investment/managed-funds-up-to-$500000/property/property_home.cfm

    Perpetual are going to cost 1.50% http://www.perpetual.com.au/pdf/2_PDS_PT2.pdf
     
  5. Johny_come_lately

    Johny_come_lately Well-Known Member

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    The experiment so far.

    At the moment I have 5299.3 units of A-REITs index @ 0.3977 $/unit which is valued at $2107.52.

    They were worth 0.3815 $/unit on 17/8/09 making a 4.25% growth in 4 months.

    I am working on a evaluation selection process at the moment. After thinking about my experiment, I decided that the fund must have a "growth year" before switching to another index.

    I have invested in a Property Securities index which holds property and infrastructure. It is 5 years old, and tracks the ASX 200 property accumulation index. It has a MER(management expense ratio) of 0.41% per annum.

    It holds 13% industrial, 63% retail, 19% office and a little residential. Companies held are Westfeild/Stockland/GPT/Mirvac..... ect.

    There may be a long wait before I see any upward movement. I'll keep you posted.





    Johny.
     
  6. Johny_come_lately

    Johny_come_lately Well-Known Member

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    The property securities index has risen from 0.3977 to 0.4149, an increase in three months of 4.32%. That means my fund has equaled the previous four months. This movement is good.:)



    Johny.
     
  7. wdongli

    wdongli Well-Known Member

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    Be a contrarian

    To make a good investment, we may need a lot of basic perceptions right. But if we really could repeat "buy worst and sell best." we would win in long enough time.

    As Warren Buffett once said "I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.

    Looking back who could buy some qualities of the companies' shares at the bottom of the crisis, have put him at a very good positions for years.

    However we tend to be followers. We buy when the market is hot and red hot. We sell when the market is sold and very cold. We tend to beat the market based on the tech analysis but we forget our worst enemies are our owns.

    Buffett believes the investment is about our pesonalities rather than our IQ. If we could keep our head up when all about you losing theirs. Logically if we could buy at the worst, we could get a lot of margin of safety for our investment.

    Worst tends to mean no risks or much less risks than our assumption.

    Let's buy in worst and sell for the best.

    Good luck!
     
  8. wdongli

    wdongli Well-Known Member

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    Best buying?

    Good concepts could not guarantee our success in the investment. But the experiences and market reality have told us we have to be correct in the basic. I like the concept "buy at worst and sell at best" very much, which could be the basis for all of options we choose to act.

    The straightforward question based on the "buy at worst" and the goal to sell for best is what we should buy at the worst. I never buy anything which could be qualities but often than not the pennies with the hope to use their leverage function to get more, much more. Looking back it is greed to drive.

    Logically we should buy the qualities which could provide good enough future earning than most of the companies could give. In reality we just could not keep to do so. If truth only could be approached the maximum profit in future would be just what we hope to get. We do need what could be get in perfect and get compromises when we try to get it.

    Buffet urges we need to think like owners. We need to buy the shares as we buy our home houses. It implies the responsibility for your own money. A not fully responsible action could not get the best result even better than normal. We tend to worry too much about the trends and ripples. We ignore a very basic fact is the money only could be got by a good business.

    Needing to do and what we do are different. I have spent more than a decade in the market but I know something but I could not follow what I know to do the things. Personality partly is inherent and partly formed by what we do in the environment special to ourselves.

    So far I just could not put the money into the qualities. One side I have not got the personality to do so and at another side I don't know how to identify the qualities with enough knowledge.

    Hope we could get together to get us to buy the best at the worst and sell not too far before the best time comes in.
     
  9. Johny_come_lately

    Johny_come_lately Well-Known Member

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    Hi wdongli

    One stockbroking tip; is to invest with a sum that has the potential of getting a good return. My $2000 won't break the bank if I fail and won't make me any money if I am right. This small stake is just for the experience.:D




    Johny.
     
  10. wdongli

    wdongli Well-Known Member

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    Hi, Johny_come_lately, it is my belief that you get the very basic winning concept, buy cheap, very cheap, and extremely cheap corresponding to the value, which could happen if all of people want to desert the shares and if the companies would not close the door.

    Understand you want to take some experiments but if you could not be sure you could buy at the worst, don't buy for your experiments. We need to sharpen our mind to buy hard and very hard. We should not use any excuses, good or bad to lose any cents, at least when we buy.

    We need to find the way what we should do if we would have some falling knifes. The fact is all of cheap ones have some underlying reasons to be so. How to reduce the loss probabilities to zero! Hard but money never is made easily. Easy money always easy gone.

    The above just the thought triggered by your good idea and concept. Hope the stone here could hit some gems out for your pocket.

    Good luck.
     
  11. wdongli

    wdongli Well-Known Member

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    We tend to be too clever

    You could be too clever in the market about one dirty-cheap fish(the pennies no one wants to hold) and then forget the inherent leverage or the inherent risks. You could be too clever to know the blips but forget the black swans and the explosive effects of them. You could be too clever to know the trend but forget the blips could turn into a storm. You could be too clever to know everything in the past and present but you just could know the future.

    I don't think I am clever enough to get the blips and trends into my hand to twist. I just want to sympathize to the market and try to match with it with a big margin of safety. I could not declare and no this kind of capability to declare the victory until a decade war finishes.

    Have you heard anyone in history could declare his victory before the time and efforts had been spent? Yes, but most of them failed since their ignorance and arrogance. I hated to be called as a stupid, idiot, or whatever bad words about me with the false self-esteem.

    Now I would be happy to heard these words since I understand the reasons why the people enjoy to push Buffett down even they never could get enough pennies in their pockets. I felt I use the same logic as that of the Cigar Butt theory. It is a theory for the fools and let the fools to accumulate their material for their dreams.

    Let the clever to get the problems and leave myself to pick the pennies at the dirty-cheap prices without worrying about the problems but reading to get a agent of my expected intelligent mental frame to communicate with the market effectively and hope efficiently someday later.

    Someone said it was impossible to get the fishes as its lowest price but if you want no loss, never have loss, and never forget no loss.
     
  12. Johny_come_lately

    Johny_come_lately Well-Known Member

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    On 10/6/10 my property index had stalled at 0.4120 (previously .4149), but is still up from the 0.3815 buy in price. I will revue the fund in August. :rolleyes:





    Johny.
     
  13. Johny_come_lately

    Johny_come_lately Well-Known Member

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    Still flatlining at 0.4082/unit. About seven percent growth since buy in. Good regular distributions; that have been reinvested. No tax.:)




    Johny.
     
  14. Johny_come_lately

    Johny_come_lately Well-Known Member

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    As flat as the Australian outback (currently 0.41/unit). I am currently questioning why I am doing this experiment. I guess I hate waiting for results. I don't mind my fund going up or down, but I wish it would do something!




    Johny.
     
    Last edited by a moderator: 8th Nov, 2010
  15. Johny_come_lately

    Johny_come_lately Well-Known Member

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    My index is back to to 10/12/2009 prices @ 0.3977. I could graph my property index with a ruler. It is as flat as the Nullabor highway. If it wasn't for the good distributions, it would be an epic fail. I said I would give it 5 years, but boy, it is trying my patience.




    Johny. :(
     
  16. Johny_come_lately

    Johny_come_lately Well-Known Member

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    Here is a graph for the past year and a half.






    Johny.
     

    Attached Files:

  17. Redwing

    Redwing Well-Known Member

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    It's a long time between drinks, but how is it faring now :D

    The US Market of late has has a good run
     
  18. Johny_come_lately

    Johny_come_lately Well-Known Member

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    The last 3 years have been terrible. On the 29th of April 2012, the unit price was 0.4051, stalled from the 0.3815 buy in price. Basically, this property index has been going sideways for three years. It definitely is the worst index I could have picked.



    Johny. :(
     
  19. wdongli

    wdongli Well-Known Member

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    Buy the worst for best margin safety

    Just go into details of my trading transaction to see what lessons I could get.

    1. Buy the worst is right but between May 2011 - Jan 2012, I tended to buy with the fear to miss the upward trend.

    I didn't do calculation of the worst case based on the market sentiment and the qualities of the shares. I failed to buy the worst and actually I bought in the sentiment crash, which inevitably resulted in further price crash.

    There are sentimental cycles in the stock market depending on our holding horizon. No anyone has the power to fight against crazy crowd. In the stampedes until its settlement could be seen, it is extremely risky and should avoid to buy anything and usually it is better to buy later than sooner.

    2. Sell the best is usually our own dream. First we could not really seen when the crash would happen if the clouds of economy peril starts to accumulate.

    When we try to sell the best, we tend to allow head to be hot. Crowd sentiment could not be measured in any trustful scientific ways. The good strategy should be based on the enoughness for your budgets and profit target annually.

    In the April 2011, there were clear signs that stock market had no way to break through 5000 so that rebuild its boom peak of 2008. The market after GFC logically should be rippled between its GFC lowest points and highest points of V-shape recovery. If I had any senses of logic and wisdom, I should lock the profit.

    The failure of locking good enough profit is disastrous not just financially but psychologically. Usually if we dare to make the first mistake we would not stop making more mistakes until we are hurt terribly in the stock market.

    Stock market is not a place to trade milk for butter which could tell us the demand and supply clearly. When the market crowd is crazy, it is the concepts and ideas to be traded. No one could be sure how a concept could be.

    3. Buy for excellent margin of safety and find them! All of traders I have known intimately are losers in the last decade. The challenge is not just about how you are excellent in any specific fields or brains but how we could never be fail-safe.

    Seriously saying I don't think we could win out if not extremely lucky, by making losses and stopping losses. However the logic behind of this illogical slogan is to avoid avoidable losses even few could stop the losses always at the time they should. If we could stop the losses, it is fine, but we are human and one failure of the stopping could be disastrous.

    Science needs the trials and errors for final truth discovering. In the market you could not trial unlimited. Once we allow the trials in losses to run they could run into the hell. We need preventive brains and methods.

    4. trump the crowd with s cool head.

    After carefully checking each transaction in last year combined with the crowd expectation and economy and market realities, I do find all of bad buying and selling were the results of my hot heads and fear and all of the deals with profit were based on cool calculation rather than feeling.

    Currently I mainly focus on the strategical and psychological matters to update my mind. However the experiences in last year did show some basic rules must be checked before our buying, holding, and selling.

    We all face unsustainable pressure and limitation. 85% of traders and investors are losers, which have told us how difficult to win in the market. Really want to jump forward but do realize I have to fix my English and then I could speed up my mind updating.

    5. Some words translated from Chinese, of which the similar logic could be found in any

    Caution is the parent of safety.

    Care and diligence bring luck.

    Constant dripping wears away a stone.

    Choose an author as you choose a friend.

    Cheats and self-cheats never prosper.

    Confidence in yourself is the first step on the road to success.

    Your enemy is yourself.

    Everything has different views from different view angles.

    (Having known these words too long and then sometimes I followed and sometimes I don't. When I didn't follow I tended to ignore them until the cost was too high. Hope I could not forget them anymore under any conditions.)

    ***
    By the way I am happy to see RBA cuts the rate of 50 basis-point and XAO has got out of the mood which forced it to led the world into imaged GFCII.

    To change my behavior in the stock market, I would try all to be emotional-less for a few hours when I want to shoot at any ideas which I don't disagree with, disliked words, or the desired shares in my future life.

    Let's learn how safely to move the profit into the vaults!
     
    Last edited by a moderator: 1st May, 2012
  20. skate

    skate Member

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    How about an update..