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Direct Share Investing

Discussion in 'Shares' started by Andrew Newman, 29th Mar, 2012.

  1. Andrew Newman

    Andrew Newman Well-Known Member

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    Hi All

    For direct share investing, I use an investment method similar to that used by Warren Buffet.

    The full description of the investment method is shown on my website at the following link: Direct Share Investing - Warren Buffet Investment Method

    I would like to hear what others think of the investment method and why more people don't use this method.

    Kind Regards
     
  2. Johny_come_lately

    Johny_come_lately Well-Known Member

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    How do your filters differ from the RAFI fundamental index system?







    Johny. :)
     
  3. Andrew Newman

    Andrew Newman Well-Known Member

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    Hi Johny_come_lately

    I am not familiar with the RAFI fundamental index system.

    However, given "index" is included in the description, I would say that the investment method I use is very different as my aim is to outperform the All Ordinaries Index. It's an active investing method and not a passive / index investing method.

    I use 12 filters plus a margin of safety.

    Kind Regards
     
  4. Johny_come_lately

    Johny_come_lately Well-Known Member

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    Hi Andrew,

    The RAFI strategy selects and weights companies according to their economic footprint defined by fundamental measures of company size (sales, cash flow, book value and dividends). The portfolio is further enhanced by applying additional factors such as quality of earnings and debt coverage. It seeks to outperform the All Ordinaries Index.




    Johny. :)
     
  5. Andrew Newman

    Andrew Newman Well-Known Member

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    Hi Johnny

    I looked up the performance of an Australian RAFI fund at Research Affiliates Fundamental Index®: Performance which shows the FTSE RAFI® Australia fund returned -0.85% per annum versus the All Ordinaries Index which returned -1.64% per annum during the 5 year period ending 29/02/12.

    This RAFI fund appears to follow the index very closely.

    The investment method I use aims to outperform the All Ordinaries Index.

    I am interested to hear what others think about the investment method I use.

    Cheers
     
  6. Tropo

    Tropo Well-Known Member

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    Considering that majority of fund managers in OZ (apparently approx. 97%) are below sea level for the last 5 years, you should become a CEO of all managed funds in OZ with your +18.3% average.
    But...I wonder if you can prove your performance (attached chart looks impressive but can be made up by anybody).
    Are you aware that Buffet is in red for the last few years ?
    Hmmm...:eek:
    There are few questions such as: what is your entry/exit trigger (rule), position size, stop loss/stop profit based on?
    Are you using leverage?
     
  7. Andrew Newman

    Andrew Newman Well-Known Member

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    Hi Tropo

    The performance charts relate to hypothetical returns. Actual client returns are also outperforming the market but don’t go back so far. The portfolios are updated annually based on my stringent "Warren Buffett" criteria, there is no stop loss/stop profit, all positions are the same size and there is no leverage. Super simple.

    With regard to the performance of Australian share funds, there was an article in The Age which provides a great summary: "Morningstar data shows that in the 10 years to February 29, 2012, only 61 out of 173 actively managed, large-company Australian shares funds outperformed the S&P/ASX 200 Index after fees, or 35.26% of funds." The full article can be found here: Best way up

    Kind Regards
     
  8. Tropo

    Tropo Well-Known Member

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    I would be very careful drawing any conclusions based on a hypothetical return.
    It's very hard to believe that you are breaking/ignoring all basic trading/investing rules and you are still above sea level.
    Without seeing any real proof, I am very sceptical.
    It seems, that we do have a different source of information in case of managed funds in OZ.
     
  9. Andrew Newman

    Andrew Newman Well-Known Member

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    Hi Tropo

    The portfolios are set up each year on a paper trading basis and without the benefit of hindsight. For example, at the start of January 2009, I came up with a portfolio of 20 shares that passed my stringent "Warren Buffett" criteria and I compared their performance to the All Ordinaries at the end of December 2009. The process has been repeated each year. During 2009, DOW was the stand out performer.

    This is very different to investment methods based on back testing and coming up with filters that show great returns.

    You mention I am breaking/ignoring all basic trading/investing rules. My response is who sets the rules? If an investor does not use a stop loss, does that mean their investment method will underperform? I don't believe that.

    Being sceptical is fine but hopefully you and other members of this forum can see the value of the investment method I use.

    Kind Regards
     
  10. Tropo

    Tropo Well-Known Member

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    All I see so far is your hypothetical performance.
    In my opinion your "method" is more guessing than anything else.
    There are too many examples which proved that without a defined entry/exit, risk/money management strategy etc...too many investors/traders lose money.
    Stop loss (exit strategy if something goes wrong), is only one of a few important "ingredients" - which are part of any trading/investing system.
    There are a lot of people incl. some financial advisors, who are trying to drive a car without breaks, so there is no surprise that so many market participants are in financial trouble.
    It's up to you what you believe in, but I am too long in this game to even remotely agree with you.
     
  11. Andrew Newman

    Andrew Newman Well-Known Member

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    This is the reason I am asking what others think of the investment method and why more people don't use this method - because some people, including Tropo, don't believe that something so simple can work. However, I have actual client portfolios (not hypothetical) that are substantially outperforming the market.

    Kind Regards
     
  12. Andrew Newman

    Andrew Newman Well-Known Member

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    Coming back to my original post.

    I would like to hear what others think of the investment method and why more people don't use this method.

    Kind Regards
     
  13. voigtstr

    voigtstr Well-Known Member

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    Introduce a stop loss (trailing stop even better) for each stock, and have some sort of position sizing approach to also limit risk (most likely based on the size of the initial stop). Your charter should also probaly allow for not trading at all in some circumstances, and having money invested earn cash rates. If the whole market is bearish why be invested when the stocks are probably going to go down (even if they are well managed companies). When the companies that fit your Buffett criteria are trending up again, jump on board.
     
  14. Andrew Newman

    Andrew Newman Well-Known Member

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    Hi voigtstr

    If stop losses and following market trends works for you and other investors then great. However, the investment method I use does not consider these and has produced great results.

    Kind Regards
     
  15. Andrew Newman

    Andrew Newman Well-Known Member

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    Hi

    Here is an update for the investment method I use.

    The returns are for a real client portfolio during the period from 10 August 2011 and 6 August 2012.

    The portfolio provided a total return of 18.8% including dividends and franking credits.

    This is a great result given the most unpredictable global economic environments in decades.

    The portfolio outperformed the All Ordinaries Index by 10.2%!

    So why don't more investors use a similar method?

    Kind Regards